RBI finds irregular practices in grant of loans against pledge of gold ornaments, jewellery

The Reserve Bank of India (RBI) has flagged concern following the detection of irregular practices in the grant of loans against pledge of gold ornaments and jewellery. This was detected following a review of the adherence to prudential guidelines as well as practices being followed Supervised Entities (SEs).

RBI Findings In a notice, the RBI has highlighted the major deficiencies which have been detected. These include:

(i) shortcomings in use of third parties for sourcing and appraisal of loans;

(ii) valuation of gold without the presence of the customer;

(iii) inadequate due diligence and lack of end use monitoring of gold loans;

(iv) lack of transparency during auction of gold ornaments and jewellery on default by the customer;

(v) weaknesses in monitoring of LTV;

(vi) incorrect application of risk-weights, etc.

In its notice, the RBI has advised Supervised Entities to conduct a comprehensively review of their policies, processes and practices on gold loans to identify gaps. Apart from this, the RBI has also asked to initiate appropriate remedial measures in a time bound manner.

Similarly, the gold loan portfolio should be closely monitored, especially in the light of significant growth in the portfolio in certain SEs.

“Action taken with regard to the above may be informed to the Senior Supervisory Manager (SSM) of Reserve Bank within three months of the date of this circular. Non-compliance with regulatory guidelines in this regard will be viewed seriously and will attract, among other things, supervisory action,” RBI notice read.