Introduction

Muthoot Finance, Manappuram Finance penalized for non compliance. RBI has imposed by order dated on November 19, 2020 a monetary penalty of Rs. 10 lakhs was levied on Muthoot Finance for performing non-complaince with the directions issued by RBI regarding Loan to value ration that imposed on the gold loans. It also sued for obtaining copy of pan card of the borrower while granting the excess gold loan pf rS. 5 Lakhs.

Understanding Loan to value ratio

The Laon to Value Ratio is regarded as an evaluation of the risk associated in any financial institutions. The different type of lenders are involved in it. It scrutinized each and everything before being approved for the mortgage purpose.

Additionally while doing the loan assessment if the LTV ratio is rapidly increasing then there is a high risk involved while granting the loan. However, when there is a high risk involved then its important for the borrower to purchase a mortgage insurance. It will diminish the risk at the hands of the lender.

Loan-to-value (LTV) ratio is the percentage of the total value of the property. LTV can range from 75% – 90% of the property value. This means that if the borrower approaches the bank for a loan of Rs. 90 then it is expected that he would provide security of at least Rs.100 but not less. However, this valuation is a tricky subject. There are many methods of artificially increasing the prices of the security offered to the bank or the financial institution.

The central bank, in a statement, said statutory inspection of Muthoot Finance with reference to its financial position as on March 31, 2018, and March 31, 2019, revealed, inter alia, the non-compliance.

RBI’s Saying

RBI did the overall statutory investigation. Regarding the non-compliance issued by RBI, in furtherance to the same the RBI issued a show cause notice to the company. In that the company had to prove as to why the penalty should not be imposed on them that was issued by RBI.

Then the company replied on the show cause notice sent by RBI. The company had done oral submission at the time of personal hearing. The additional submission made by the company scrutinized. Thus, RBI concluded that the charges of non compliance issued on the company as per the RBI directions. It told them to proof evidence to support the case, It warranted imposition of monetary penalty as a whole.

“After considering the company’s reply to the notice, oral submissions made during the personal hearings and examination of additional submissions made by it, RBI concluded that the aforesaid charges of non-compliance with RBI directions were substantiated and warranted imposition of monetary penalty,” the statement said.