The adverse news around non-banking financial companies (NBFCs) that lend against gold jewellery doesn't seem to stop.
After the Reserve Bank's tough stance against the rapid rise and the inherent risk associated with such companies, the central excise department has now started investigating such firms for service tax evasion, sources told NDTV Profit.
The excise department has written to banks asking them to furnish documents pertaining to these NBFCs. ICICI Bank, Kotak Mahindra, IDBI, Yes Bank, Dhanlaxmi Bank, Axis Bank and Federal Bank have received these letters from the excise department.
However, the investigations are still in its preliminary stage, and no show-cause notices have been issued. But for gold NBFCs who are already facing the heat from various regulators, the move is only expected to add to their woes
Sources say NBFCs are likely to be taxed on the collection fee that they make after securitizing their portfolio with banks. NBFCs securitise a part of the loan portfolio to banks, And after recovering the loan from the borrowers, they sell it to banks which in turn pays them upfront commissions, which are called a collection fee. According to sources, the collection fee is likely to get taxed, as NBFCs are playing the role of a collection agent rendering services to banks
The slew of regulatory proposals and actions has taken their toll on shares of companies that deal in gold loans.
Over the last month, shares of Muthoot Finance have fallen 18.5 per cent while Manappuram Finance has lost over 29 per cent in value. In contrast, the Sensex, the Bombay Stock Exchange's benchmark index, has gained over 0.5 per cent the same period.
Shares of these NBFCs traded lower in Friday. At 11:40 a.m., the Sensex was down 0.18 per cent, Manappuram Finance was lower 0.82 per cent at Rs 30.30 while Muthoot Finance, traded 1.67 per cent lower at Rs 129.90.
In an email to NDTV Profit, Kotak Mahindra Bank has confirmed that it is neither a seller of receivables nor renders any services and that the bank is fully compliant on all its tax obligations. It is extending full co-operation to the tax authorities, the bank said.
In its annual monetary policy announced Tuesday, the Reserve Bank said that banks should reduce their regulatory exposure ceiling in a single NBFC, having gold loans to the extent of 50% or more of its total financial assets, from the existing 10 per cent to 7.5 per cent of bank's capital funds.
Banks should also have an internal sub-limit on their aggregate exposure to all such NBFCs, the central bank said.
In March, the RBI had announced some measures, including a loan-to-value (LTV) ratio not exceeding 60% for loans against collateral of gold jewellery and a minimum Tier 1 capital of 12% by April 1, 2014 - to check the rapid pace of such NBFCs. The central bank has also stipulated that such NBFCs should not grant any advance against bullion/primary gold and gold coins.
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