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The Reserve Bank of India (RBI) has uncovered significant irregularities in the processing of loans against gold jewellery by supervised entities.
Following a recent review and on-site inspections of select financial institutions, the RBI found several deficiencies in processing of gold loans, and asked the players to comprehensively review their processes and practices to identify and address regulatory lapses.
“Non-compliance with regulatory guidelines in this regard will be viewed seriously and will attract, among other things, supervisory action by the RBI (Reserve Bank of India),” the central bank said in a notification on Monday.
The major deficiencies include shortcomings in use of 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.
The RBI has asked gold loan providers to submit an action report to the senior supervisory manager of the central bank within three months.
“All supervised entities (SEs) are advised to comprehensively review their policies, processes and practices on gold loans to identify gaps, including those highlighted in this advice, and initiate appropriate remedial measures in a timebound manner,” said the central bank. “It should also be ensured that adequate controls are in place over outsourced activities and third-party service providers,” it said.
The gold loan portfolio should be closely monitored, especially in the light of significant growth in the portfolio in certain SEs, the RBI said.
With gold prices reaching record highs, the demand for gold loans from banks has risen significantly in recent months. Gold loan outstanding has surged 40% to `1.32 lakh crore as of July end, compared with ` 95,344 crore in the year-ago period, showed RBI data.
KYC compliance was often outsourced to third parties, raising concerns about the quality and thoroughness of due diligence.
The central bank also flagged inadequate monitoring of loan-to-value (LTV) ratios, with some institutions failing to address breaches of regulatory ceilings. Despite system-generated alerts, corrective actions were not taken, indicating lapses in governance and oversight. The review also revealed cases where a single borrower obtained an unusually high number of gold loans under the same PAN in a financial year, suggesting potential misuse of the lending process. “It should also be ensured that adequate controls are in place over outsourced activities and third-party service providers,” said the RBI.
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