Surging gold loan business sets off RBI alarm
Several practices in gold lending pointed by supervisor; 3 months’ time to mend ways
– Team Finserv (finserv@vinodkothari.com)
The Reserve Bank of India (‘RBI’) issued a notification dated September 30, 2024[1] raising concerns on the irregular practices observed in the grant of loans against pledge of gold ornaments and jewellery.
The RBI’s comprehensive review has unveiled notable deficiencies, including lapses in due diligence process, credit appraisals, ineffective monitoring of loan-to-value (LTV) ratios, a lack of transparency in the auctioning of jewellery upon default and so on. This notification compels all commercial banks, primary co-operative banks, and non-banking financial companies to undertake a meticulous evaluation of their existing gold lending processes and rectify identified gaps or shortcomings.
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