RBI Flags Irregular Practices in Gold Loan Sector, Calls for Immediate Reviews

The Reserve Bank of India (RBI) has identified irregular practices in the gold loan sector, highlighting deficiencies in loan sourcing, valuation, and monitoring. The bank advised lenders to conduct comprehensive reviews and close gaps within three months, warning of serious consequences for non-compliance.

The Reserve Bank of India (RBI) has flagged a series of irregular practices within the gold loan sector, urging businesses to scrutinize and rectify their policies immediately.

According to the central bank, a review has unveiled significant deficiencies in the lending processes against gold ornaments and jewellery. These include improper use of third parties for loan sourcing and appraisal, valuation conducted without the presence of customers, insufficient due diligence, lack of end-use monitoring, and non-transparent auction processes in case of defaults.

Despite these issues, a recent Icra study predicts a substantial growth in the gold loan portfolio to Rs 10 lakh crore by March 2025. In response to the identified gaps, the RBI has directed all supervised entities engaged in gold loan businesses to undertake a comprehensive review of their policies and processes. They must implement necessary remedial measures in a timebound manner and ensure effective control over outsourced activities and third-party vendors. Non-compliance will invite strict supervisory actions from the RBI.

(With inputs from agencies.)