Kolkata: Gold loans are becoming widespread in India. While some are taking advantage of the continuous northward march of the price of the precious metal and extracting more value from the same quantity of gold, many others are compelled by financial hardships to pawn their gold. But for the lending institutions the outcome is the same — a big rise in gold loans. RBI has come out with a range of steps against this backdrop.
The highlights of the draft are setting up of borrower limits and standardisinfg ways of testing the metal’s purity before lending and even monitoring end-use of the loan funds. Announced on April 9, the measures are aimed at enhancing underwriting, improving collateral management and monitoring end-use of funds. According to the announcement, the draft guidelines will be applicable to such loans disbursed by Small Finance Banks (SFB), Regional Rural Banks (RRB), excluding Payments Banks, Co-operative Banks, NBFCs and Housing Finance Companies (HFCs).
Testing test a key concern
One of the key concerns of the banking regulator in the past has been the possible buildup of stressed loans in this category. Many reports surfaced in the past few years that field agents were often not properly assessing the quality of gold while accepting jewellery as collateral while sending loan proposals. RBI has now come up with the proposal to standardise the tests for determining the quality of gold that will back up the loans. “Lenders shall ensure that a standardised procedure is put in place to assay the purity of gold collateral, its weight (gross as well as net), etc. This procedure shall be adopted uniformly across all branches of the lender,” reads the draft.
Other highlights
- Loans has to be linked to borrower’s repayment capacity.
- Lenders have to follow ‘proper systems and controls’ to ensure that the end-use of these loans are monitored and recorded.
- The same gold collateral cannot be used concurrently for extending loans for income generating purposes or consumption loans.
- No loans shall be sanctioned against gold whose ownership is not clear.
- All loan renewals, top-up loans can be sanctioned if the existing loan is classified as ‘standard’.
- Maximum tenure for bullet repayment loans to be set at 12 months.
- Co-operative banks, RRBs can issue bullet repayment loans up to Rs 5 lakh per borrower.
- Total weight of pledged gold jewellery and coins is capped at 1 kg per borrower.
- The weight of pledged coins cannot exceed 50 grams of gold.
- Only specially minted gold coins or 22 carats or more issued by banks can be accepted as collateral.
With Reserve Bank of India issuing proposed guidelines, the face of gold loans in the country is perhaps going to change with this sort of credit moving into a harmonised regulatory framework. Personal Finance Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
