 "Lenders told to monitor gold loan portfolios, ensure checks in place: RBI")
The Reserve Bank of India (RBI) has directed banks and non-banking finance companies (NBFCs) to closely monitor their gold loan portfolios and ensure that adequate controls are in place over outsourced activities and third-party service providers.
In its annual report released on Thursday, the RBI said the Department of Supervision and Regulation had jointly conducted a review of adherence to prudential guidelines and found several irregularities. These included lapses in monitoring loan-to-value (LTV) ratios, incorrect application of risk weights, shortcomings in the use of third parties for loan sourcing and appraisal, inadequate due diligence, lack of end-use monitoring, and insufficient transparency during the auction of gold ornaments.
“The supervised entities have been advised to comprehensively review their policies, processes, and practices on gold loans to identify gaps and initiate appropriate remedial measures in a time-bound manner,” the report said.
In April, the central bank had released draft guidelines on loans against gold, prompted by ongoing irregularities. The proposed norms suggest that the LTV must be maintained within a ceiling of 75 per cent throughout the loan tenure, inclusive of both principal and accrued interest.
According to rating agencies, maintaining a 75 per cent LTV cap could reduce the disbursement of gold loans to 55–60 per cent from the current 65–68 per cent, particularly in bullet repayment loans. In the case of equated monthly instalments (EMI)-based loans, a higher LTV may be offered, though such loans typically result in a faster rundown of the loan book.
The RBI also stated that lenders must establish a ceiling on the proportion of their loan portfolios secured by eligible gold collateral relative to total loans and advances. This ceiling should be periodically reviewed, taking into account factors such as portfolio granularity, collection efficiency, auction-based realisation performance, economic capital adequacy, and concentration risks.