Mumbai-based NBFC Mahindra and Mahindra Financial Services Ltd (MMFSL) has stopped making gold loans due to sharp fluctuations in the price of the precious metal, a research report released by global financial company Goldman Sachs has said.
"The company has stopped gold loans due to volatile gold prices," the report said.
Gold prices have bobbed up and down in the recent times amid uncertainty in the global economy. The precious metal's price have seen an upsurge in the past year as investors are increasingly looking to it as a safe haven amid uncertain market conditions.
While gold prices touched a record USD 1,923.70 per ounce in international markets on September 6, they fell below the USD 1,700 per ounce level yesterday. In the domestic market, gold slipped below Rs 28,000 per 10 grams at the close of trade yesterday.
Meanwhile, referring to loans in the rural housing segment, the report said Mahindra & Mahindra Financial Services has set a target to grow its loan book to around Rs 4,500 crore (around USD 912 million) from the present Rs 3,670 crore in the next three to five years.
However, the report noted that the company was facing pressure on its margins due to high borrowing costs.
"There is some pressure on margins as the company hasn't fully passed on the increase to borrowers. This is difficult given the already high-yields charged," the report said.
It also said that a change in NPA guidelines would increase provisioning costs for the company without any deterioration of asset quality.
However, the NBFC will not face any impact on its balance sheet due to the change in capital requirement norms.
"As per the Usha Thorat Committee report, Tier-I should be at 12 per cent for NBFC. MMFS has a tier-I capital of 15.8 per cent currently," it said, adding that internal accruals will take care of these capital adequacy norms.
MMFS provides various credit facilities, like vehicle loans, personal loans and home loans, among others, and has a good presence in rural regions of the country.
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