Gold loan non-banking financial companies (NBFCs) are implementing core banking solutions (CBS) in their branches to keep a check on the discretionary powers of branch managers.
At present, branch managers of the gold loan firms have discretionary powers to decide on loans. After the implementation of CBS, even if the branch manager will continue to have discretionary powers, the monitoring would be real-time by the company head office. This will help these companies in improving risk management practice and also better communication between the head office and the branch.
“There can’t be any deviation from the laid down procedure (in CBS) in terms of rate of interest and value of gold, which will ensure the transparency in the operations,” said Padma Kumar, executive director, Muthoot Finance.
Muthoot Finance has already connected 3,000 of its 3,800 branches with the CBS and hopes to connect the rest of them by the end of this month.
A working group set up by the Reserve Bank of India (RBI) under the chairmanship of K U B Rao to look into the issues related to gold import and gold NBFCs said in its draft report:
“The practices followed by the NBFCs in gold loan business need to be subjected to scrutiny in order to make this organised financing process free from vagueness, which otherwise leads to exploitation of customers.”
Muthoot Fincorp, another gold loan NBFC, said that all its branches are computerised and they follow standard procedures across all the branches. “It has been observed that the employees generally do not explain the product features completely to the borrower who generally comes from the lower strata of the society and is illiterate,” the RBI report said.
The Rao committee specifically said that the NBFCs need to review their risk management practices, and corporate governance framework, among others. According to gold NBFCs, CBS implementation will also bring transparency in the operations of these companies, as desired by the Rao committee.
Of late, there has been a rise in complaints against the gold firm companies.
According to the Rao panel report, under the Right to Information Act, the RBI has received a large number of complaints about high rates of interest, penal interest due to delayed repayment, auction of pledged gold without proper notice, and prepayment charges.
As a result, the RBI committee also prescribed an ombudsman scheme to address the complaints against NBFCs. “This will be a no-cost service to the customers and will go a long way in disciplining the NBFCs as well,” said the Rao committee.