New Delhi: Gold loans can be of much help during financial emergencies. However, before you apply for a gold loan, you should be aware that there are numerous frauds and scams going on in the market related to the precious metal. Gold loan financiers have duped people of lakhs and crores of rupees. Let’s see how gold loan financiers can dupe borrowers when you approach for a loan:
Misinterpretation of Gold’s Value
There have been instances when it has been found Non-Banking Financial Companies (NBFCs) manipulating the valuation of gold that borrowers keep as a mortgage for a loan. Suppose, you approach an NBFC for a gold loan. You want to mortgage 100 grams of jewellery. The jewellery is of 22 carats. If on that day, the price of 24-carat gold is Rs 72,000 per 10 grams in the market, then, the value of your jewellery should be determined to be Rs 66,000 per 10 grams.
It will be calculated as follows:
Rs 66,000 = (Rs 72,000/24 x 22).
Thus, the loan financier should determine the value of your gold or jewellery to be Rs 6,60,000. (66,000 x 10).
According to the Reserve Bank of India’s rules and regulations, banks and financial companies could lend up to 75% of the mortgaged gold’s value. So, here in the above example, you should ideally get a loan of up to Rs 4,95,000 (Rs 6,60,000 x 75/100). This is called Loan to Value or LTV.
But what’s happening in the market is that when you would visit the finance company for the loan. The financier would sanction you a gold loan of just Rs 3 lakh. But the financier would show in the documents that you have kept mortgage 18 carat gold with it. So, the value of your gold will be determined on the basis that it is of 18 carat only. But you would actually mortgage 22-carat gold. Consequently, the value of the precious metal that will be documented with the NBFC for the gold loan sanctioned will be Rs 54,000 per 10 grams.
This will be calculated as follows:
Rs 54,000 = Rs 72,000/24×18
But you would get only Rs 3 lakh loan. The NBFC would deprive you of your rights to get full Rs 4.95 lakh loan amount.
What is the RBI action against gold loan?
In an investigation, the RBI had found out that NBFCs used the technique we mentioned above to defraud the customers in gold loan transactions. Recently, such malpractices were found in the case of IIFL. This is why the central bank stopped IIFL Finance from sanction of such loans. Several irregularities related to LTV had come to light in 67% of IIFL Finance’s gold loan accounts. After this disclosure, RBI has tightened regulations on gold loans.
So, if you consider approaching a financial institution for a gold loan, you should remain alert and aware of such hacks. If the finance company does not assess the correct value of your jewellery, try elsewhere for a loan. It is better to get your gold’s purity checked before you approach for the loan. Nowadays, many big jewellers provide this service for free. Not only that, these also provide purity certificates.
People are being duped of lakhs and crores of rupees in gold loan related frauds and scams being committed by the Non-Banking Financial Companies (NBFCs) in the market. Personal Finance Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
