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Informist, Monday, Sept. 30, 2024

 

--RBI: Review of loans vs pledged gold ornaments shows irregular activity

--RBI: Cos should fully review their policies on gold loans, identify gaps

--RBI: Cos must closely monitor gold loan portfolio given significant growth

 

MUMBAI – The Reserve Bank of India has advised entities to comprehensively examine their gold loan policies and processes after a review by the central bank revealed several irregularities, it said on Monday. Loans against gold and jewellery were up 40.9% on year as of Aug 23, up from a rise of 20.4% seen a year ago, as per data from the RBI. In comparison, the total non-food credit in the system was up 13.6% on year. 

 

While reviewing the related guidelines and practices followed by regulated entities, the RBI found instances where valuation of gold was done without the presence of the customer. It also found shortcomings in the use of third parties for sourcing and appraisal of loans. The banking regulator, noting other deficiencies, said there was a lack of transparency during the auction of gold ornaments and jewellery, on default by the customer.

 

Noting significant growth in the portfolio of gold loans in some entities, the RBI said such portfolios must be closely monitored. It said, in certain entities, the share of gold loans disbursed in cash to total gold loans disbursed was high. Further, the statutory limit specified under the Income Tax Act, 1961 on cash mode of disbursal was also not adhered to in many cases. The central bank also noted the non-categorisation of gold loans as non-performing assets, and evergreening by renewing overdue loans or issuing a fresh loan.

 

Taking action against irregularities in giving gold loans, the RBI in March had barred IIFL Finance Ltd from sanctioning or disbursing gold loans. It took the decision after finding serious deviations in the assaying and certification of the purity and net weight of gold by IIFL Finance when sanctioning loans and at the time of auction upon default. Later, on September 19, the central bank lifted the restrictions imposed on the gold loan business of IIFL Finance Ltd.  End

 

Reported by Sourabh Kumar

Edited by Akul Nishant Akhoury

 

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