Gold Loans Update: The irregularities in giving gold loans have increased the concern of the Reserve Bank of India, the regulator of the banking sector. After this disturbance, RBI has issued a circular to all the financial institutions regulated by itself and asked them to take concrete action in this direction. Recently, RBI had conducted a comprehensive review in financial institutions regarding distribution of gold loans, in which the regulator has found serious negligence, after which RBI has issued this circular.
Big negligence in giving gold loan
Regarding the shortcomings found in the gold loan given against gold jewelery during the investigation, the regulator said that many shortcomings were found in the use of third parties in the sourcing and appraisal of the loan. The valuation of gold is decided in the absence of the customer. While giving gold loan, no investigation is done nor any monitoring is being done. Transparency is not being maintained in the auction of gold jewelery due to customer default. 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 shortcomings, RBI has asked all the regulated entities to review their policies, processes and practices regarding gold loans and identify and correct the shortcomings. RBI has asked to take all measures to rectify this within the time limit. Also, after the huge growth in gold loan portfolio, instructions have been given to monitor the gold loan portfolio very closely. RBI has been asked to control outsourced activities and third party services providers.
There will be serious consequences for not taking action
RBI has asked all regulated institutions to inform the Senior Supervisory Manager of RBI about the action taken and the action taken within three months of the issue of the circular. RBI has told all the institutions that if action is not taken, it will be taken seriously and then appropriate action will be taken.
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