Key findings from the review
The RBI’s review highlighted multiple areas of concern among commercial banks, non-banking financial companies (NBFCs), and cooperative banks regarding their gold loan operations.
Some of the most pressing issues identified include:
Lack of customer involvement: Many entities were found valuing gold in the customer’s absence, raising questions about transparency and fairness in the appraisal process. The mode of transportation of gold to the bank branch is also delayed and insecure.
Inadequate due diligence: There was a noticeable lack of monitoring regarding the end use of gold loans, with many entities failing to verify how the funds were utilised, particularly for non-agricultural loans.
Weak governance structures: Instances of unusually high numbers of loans granted to the same individual were observed, indicating potential governance issues. Further, practices like rolling over loans and inadequate monitoring by senior management were flagged.
Transparency issues: Deficiencies in the auction process for gold ornaments and jewellery in case of defaults further exacerbated the situation, with many customers receiving lower-than-expected returns on their collateral.
High cash disbursal rates: Alarmingly, some entities disbursed a significant share of gold loans in cash, often ignoring the statutory limits set by the Income Tax Act, 1961.
A call to action
In light of these findings, the RBI has urged all supervised entities to conduct a thorough review of their gold loan policies and practices. Institutions are expected to identify gaps and implement remedial measures within a specified time frame.
The RBI also emphasised the importance of adequate controls, especially over outsourced activities and third-party service providers, to mitigate risks associated with gold loans.
Failure to comply with these regulatory guidelines could lead to serious supervisory action by the RBI, underscoring the gravity of the situation.
Also Read: Gold loan market set to reach ₹15 lakh crore by March 2027: ICRA
(Edited by : Shoma Bhattacharjee)