RBI Flags Irregular Practices in Gold Loan Granting

The Reserve Bank of India has identified irregular practices in gold loan pledges and has advised supervised entities to review their policies and processes. Actions should be taken promptly to address these gaps.

The Reserve Bank of India (RBI) has discovered irregular practices in the grant of loans against gold ornaments and jewelry by certain entities. In response, the central bank has advised all supervised entities to conduct a comprehensive review of their current policies, processes, and practices related to gold loans to detect and rectify any discrepancies.

A recent RBI review and the findings from onsite examinations revealed several significant irregularities in gold loan practices. These include improper use of third parties for sourcing and appraising loans, valuing gold without the borrower's presence, inadequate due diligence, insufficient monitoring of loan utilization, opaque auction processes for defaulted gold, weaknesses in loan-to-value monitoring, and incorrect application of risk-weights.

The RBI emphasized that the gold loan portfolio should be meticulously monitored, especially given recent substantial portfolio growth in some entities. Adequate controls over outsourced activities and third-party service providers must be in place. Entities have been instructed to report on the actions taken to the Senior Supervisory Manager (SSM) of the RBI within three months. Failure to comply with these guidelines will result in serious supervisory actions from the RBI.

(With inputs from agencies.)