Action against banks, NBFCs if they violate gold auction norms: Sitharaman

Finance Minister Nirmala Sitharaman on Monday said action will be taken in case there are violations of well laid down processes for auctioning of gold by banks and NBFCs when a borrower fails to pay the gold loan.

During Question Hour in Lok Sabha, she said Non Banking Financial Companies (NBFCs) and Scheduled Commercial Banks (SCBs) are guided by similar rules.

There are very well laid down and tight processes in place for auctioning of gold by NBFCs and banks in case a borrower fails to pay the gold loan. These processes are followed by NBFCs and banks, she told Lok Sabha.

There is a process for giving enough number of notices to bank account holders to say their servicing is not up to the mark. In the eventuality of a borrower not coming back to pay, the bank or NBFC will be forced to go for an auction, the minister said.

Sitharaman stressed that even while going for an auction, there are very well laid out procedures and tight processes.

"... if these processes are violated, indeed it is for us to act on but processes are... followed by the banks... I think if there are specific instances where laid out norms are violated, I am quite willing to take the details and act on it," she said.

The minister was responding to questions from DMK leader Kanimozhi Karunanidhi regarding auctioning of gold by entities when there are defaults on gold loan repayments.

Replying to a query from Congress leader Manish Tewari, the finance minister said demand for gold in India has not come down and on the contrary, it is going up.

"It is very typical of India, particularly for households, small businesses... to invest in gold for they think it is far more secure and liquid. As an asset class, we see that sustained interest by households and small businesses as much as women of India," she added.