MUMBAI(BullionStreet): India's surprise interest rate cut pull down shares of gold loan companies in the stock market Tuesday.

Reserve Bank of India (RBI) cut short term lending rate by 0.50 per cent to 8 per cent and banks' credit exposure to gold loan from 10% to 7.50%.

In a statement issued here, RBI said 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% to 7.5% of bank's capital funds.

RBI has also set-up a working group under K U B Rao to look into all aspects relating to gold loan by NBFCs.

"There has been significant increase in loans by NBFCs against gold in the recent period. There are also complaints against some NBFCs that they are not scrupulously following proper documentation process and know your customer (KYC) norms, among others, in order to quickly dispose off the cases relating to gold loans," RBI said.

Gold imports have also increased sharply, raising macroeconomic concerns, it added.The working group is expected to submit the report by end-July 2012, it added.

RBI will undertake the mid-quarterly review of the monetary policy on June 18 while first quarter review is scheduled on July 31.

Analysts said the decision by country's central bank is aimed to boost the economy but will limit bank's lending exposure and hit non banking finance companies as their cost of borrowing will climb.

They said the the reduction in the repo rate at which RBI lends to banks, has been prompted by deceleration in growth and softening of inflation.