Gold loans: Some easing, some stiffening by RBI

The Reserve Bank of India (RBI) has eased the norms for extending loans against gold jewellery as collateral. Now, non-banking finance companies (NBFCs) can give a loan up to 75 per cent of the gold value; the previous limit was 60 per cent.

A committee chaired by K U B Rao had recommended this, once business levels of gold loan NBFCs came to an appropriate level. The loan-to-value ceiling had been raised after moderation in the growth of gold loan portfolios of NBFCs in the recent past, RBI stated on Wednesday.

I Unnikrishnan, executive director & deputy chief executive, Manappuram Finance, said: “This will be positive for the (gold loan) industry; it will also benefit customers.”

THE RIDERS ON GOLD LOANS

• Only intrinsic value of the gold to be used to determine the loan value
• NBFCs will have to certify on purity of gold, which will be used to determine the maximum permissible loan and the reserve price for auction
• The firms can, however, include suitable caveats to protect themselves against disputes on redemption
• Mandatory ownership verification to be done in cases where the gold jewellery pledged is more than 20g, through a suitable document explaining how the ownership was determined
• Firms have to conduct auction in the same town or taluk, in which the branch that had extended the loan is located
• Disbursement of loans of Rs 1 lakh and above must be done through cheques

Only the intrinsic value of the gold content should be used for determining the maximum loan. No other cost elements should be added. Some NBFCs are adding making charges to the value of the gold jewellery, RBI said.

It added that the finance companies would have to give a certificate on the gold purity. The certified purity will be used to determine the maximum permissible loan and the reserve price for auction. NBFCs can, however, include suitable caveats to protect themselves against disputes on redemption, RBI said.

Unnikrishnan said: “We give certificates on purity and weight of the gold to our borrowers. So, for us, it does not change anything.”

NBFCs had raised apprehensions on certifying the purity of gold jewellery, saying this could lead to disputes with borrowers.

RBI said ownership verification should also be done, especially where the jewellery pledged is more than 20g. NBFCs should have an explicit policy in this regard in their overall loan policy.

RBI turned down a plea for geographical flexibility in conducting auctions of pledged gold. It said these finance companies must do so in the same town or taluk in which the branch which had extended the loan was located.

The disbursement of loans of Rs 1 lakh and above must be done only through cheques. At present, the majority of loans in NBFCs’ portfolios are below Rs 1 lakh each, said RBI.

NBFCs had argued that payment by cheque would mean delays in the borrower getting the funds and these could be accentuated where disbursements happen during weekends.