kochi the reserve bank of india rbi said in a draft report released on wednesday that gold loans offered by nonbanking finance companies nbfcs currently do not pose a problem to domestic financial stability the report also took a proactive stand on the loantovalue ltv ratio given by nbfcs and the liberalisation of gold loans the draft report recommended the ltv ratio to be increased to 75 from the current 60 it believes that if the ltv is constricted people will go back to pawnbrokers and money lenders whose ltv ratios are as high as 95 that may not be a positive development to accept even from the financial inclusion point of view the report noted however the report submitted by the apex banks working group led by k u b rao an advisor to the banks department of economic and policy research has recommended strict monitoring of some of the practices in the nbfc sector as of now gold loans nbfcs do not pose a problem for domestic financial stability going by the past trends a sudden drop in gold price by 30 to 40 is a remote possibility causing any financial distress to gold loans nbfcs asset quality nonperforming assets as a per cent of total credit exposure and the capital adequacy of gold loans nbfcs are also not a cause for concern at present the sources of funds of gold loans nbfcs also do not appear to be an immediate cause for anxiety giving rise to concentration credit risk however the striking growth of gold loans nbfcs business in recent years warrants that their operations may be closely monitored the panel said it also highlighted the need to liberalise gold loans by both banks and nbfcs to increase the monetisation of idle gold stock in india gold loans may be given for all productive purposes the report said the panel also recommended the setting up of a bullion corporation which would function as a backstop facility providing liquidity for lending against gold or as a refinancing agency stricter control on bringing gold to the country is also mooted in the report on the topic of customer protection the working group recommends stricter measures in many areas transparent communication of loan terms review of auction procedures and disclosure standards implementation of fair practices code and use of pan card for large transactions are other significant recommendations further the report suggested that there should be a restriction on the number of branches the focus of the already expanded nbfcs should be on consolidation of the existing network it recommended the working group report also called for the review of current stipulations related to raising resources through nonconvertible debentures ncds