Mumbai: The Reserve Bank of India ( RBI) Monday warned it would take supervisory action on regulated entities for violating gold loan norms if corrective measures are not taken within three months. It also directed banks to closely monitor the gold loan portfolio that rose the fastest-at 41%-in August, compared with 20.4% in the same period a year ago, central bank data showed.
The RBI has asked lenders to "initiate appropriate remedial measures in a time bound manner" and "ensure adequate controls are in place over outsourced activities and third-party service providers". The banking sector's portfolio of loans against gold jewellery stood at ₹1.4 lakh crore as of the end of August, data on sectoral deployment of bank credit published Monday showed.
The central bank said its onsite examination found several irregular practices followed by regulated entities when lending against gold ornaments and jewellery pledges.
Lack of Transparency
A rally in gold prices, about 29% this year according to a UBS report, led to demand for gold loans, bankers said.
Significant deficiencies include shortcomings in using third parties for sourcing and appraisal of loans, valuation of gold without the presence of the customer, inadequate due diligence, and lack of end-use monitoring of gold loans, said the regulator. This apart, the RBI said there is lack of transparency in the auctioning of gold ornaments on default by the customer, weaknesses in the monitoring of loan to value (LTV), and incorrect application of risk-weights.
The RBI asked lenders to undertake a 'comprehensive review of their policies, processes and practices on gold loans to identify gaps'.
The banking regulator has asked lenders to inform the RBI's senior supervisory manager in three months (from September 30) on their corrective action.
"Non-compliance with regulatory guidelines in this regard will be viewed seriously and will attract, among other things, supervisory action by RBI," it said.
Sectoral deployment of credit data showed the gold loan portfolio rose 41% in August, the second-highest growth category after loans to renewable energy projects, which expanded by 45% during the month.
The RBI also expressed concern that many loan accounts were closed within a short time of sanction, raising doubts over the economic rationale for such action.
The regulator also observed an unusually high number of gold loans being granted to the same individual with the same PAN during a financial year.
Giving details on the deviation in practices, the RBI said the valuation of gold was not done in the presence of the borrower when the loan was given in partnership with fintech entities or businesses. Also, KYC compliance for the loans was done through fintechs, using their internal accounts for disbursement and repayment of loans.
The RBI had restricted IIFL Finance in March from giving new gold loans due to lapses in the lending processes. The latest warning is issued within a fortnight of lifting the ban on the finance company.
The RBI has asked lenders to "initiate appropriate remedial measures in a time bound manner" and "ensure adequate controls are in place over outsourced activities and third-party service providers". The banking sector's portfolio of loans against gold jewellery stood at ₹1.4 lakh crore as of the end of August, data on sectoral deployment of bank credit published Monday showed.
The central bank said its onsite examination found several irregular practices followed by regulated entities when lending against gold ornaments and jewellery pledges.
Lack of Transparency
A rally in gold prices, about 29% this year according to a UBS report, led to demand for gold loans, bankers said.
Significant deficiencies include shortcomings in using third parties for sourcing and appraisal of loans, valuation of gold without the presence of the customer, inadequate due diligence, and lack of end-use monitoring of gold loans, said the regulator. This apart, the RBI said there is lack of transparency in the auctioning of gold ornaments on default by the customer, weaknesses in the monitoring of loan to value (LTV), and incorrect application of risk-weights.
The RBI asked lenders to undertake a 'comprehensive review of their policies, processes and practices on gold loans to identify gaps'.
The banking regulator has asked lenders to inform the RBI's senior supervisory manager in three months (from September 30) on their corrective action.
"Non-compliance with regulatory guidelines in this regard will be viewed seriously and will attract, among other things, supervisory action by RBI," it said.
Sectoral deployment of credit data showed the gold loan portfolio rose 41% in August, the second-highest growth category after loans to renewable energy projects, which expanded by 45% during the month.
The RBI also expressed concern that many loan accounts were closed within a short time of sanction, raising doubts over the economic rationale for such action.
The regulator also observed an unusually high number of gold loans being granted to the same individual with the same PAN during a financial year.
Giving details on the deviation in practices, the RBI said the valuation of gold was not done in the presence of the borrower when the loan was given in partnership with fintech entities or businesses. Also, KYC compliance for the loans was done through fintechs, using their internal accounts for disbursement and repayment of loans.
The RBI had restricted IIFL Finance in March from giving new gold loans due to lapses in the lending processes. The latest warning is issued within a fortnight of lifting the ban on the finance company.
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