Negligence in giving gold loans, RBI instructed…?

The irregularities in giving gold loans have increased the concern of the banking sector regulator Reserve bank of India. After this irregularity, RBI has issued a circular to all the financial institutions regulated by it and asked them to take concrete action in this direction. Recently, RBI had done a comprehensive review in financial institutions regarding the distribution of gold loans, in which the regulator has found serious negligence, after which RBI has issued this circular.

Major negligence in giving gold loans

Regarding the flaws found in the gold loans given in exchange for gold jewellery during the investigation, the regulator said that many deficiencies have been found in the use of third party in the sourcing and appraisal of the loan. Valuation of gold is decided in the absence of the customer. While giving gold loan, no investigation is done and no monitoring is being done. Transparency is not being maintained in the auction of gold jewellery when the customer defaults. Monitoring of loan to value is very weak. Wrong application is being used in risk-weight.

Instructions to monitor gold loan portfolio

On finding these flaws, RBI has asked all regulated entities to review their policy, process and practice regarding gold loan and identify the shortcomings and correct them. RBI has asked to take all measures to correct this within the time limit. Also, after the huge growth in the gold loan portfolio, instructions have been given to monitor the gold loan portfolio very closely. RBI has been asked to control outsourced activity and third party service providers.

Not taking action will have serious consequences

RBI has asked all regulated institutions to inform the senior supervisory manager of RBI within three months of the issuance of the circular about the action taken. RBI has told all the institutions that if action is not taken, it will be taken seriously and then appropriate action will be taken.