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In a circular dated September 30, RBI pointed out the irregularities that took place regarding the disbursement of loans against gold ornaments and jewellery.
Gold loans worth Rs 1.4 lakh crore were disbursed by banks.
The Reserve Bank of India (RBI) has issued a stern warning to banks and gold loan companies, expressing its dissatisfaction with shortcomings in gold loan distribution. Following this, the gold loan industry is not planning to introduce a monthly repayment scheme. Under this plan, banks and gold loan companies may ask the borrowers to repay the loan in monthly instalments, including interest and principal, after loan initiation. It was reported that banks offering gold loans are also exploring such ways to provide customers with gold loans.
According to a report by The Economic Times, a senior bank official mentioned that the RBI’s directive clearly stated that the organisation wants the gold loan companies to examine the repayment capacity of borrowers and not solely rely on pledged jewellery. Thus, the banks are now planning to start monthly repayment options for gold loans to make the loan payments easier.
In a circular dated September 30, RBI pointed out the irregularities that took place regarding the disbursement of loans against gold ornaments and jewellery. The top bank identified the issues related to gold loan sourcing, valuation, auction transparency, monitoring of loan-to-value (LTV) ratios, and risk-weighting. It also mentioned that extending the term of repayment by accepting partial payments is also an unhealthy practice.
Usually, gold loan companies offer a bullet repayment option, allowing the borrowers to repay the entire loan amount at the end of the tenure without paying any amount monthly. Another common practice has been allowing borrowers to make partial payments whenever they have the funds available and extend the tenure of repayment.
In light of RBI’s concerns and warnings, banks and non-banking financial companies are now considering introducing a monthly repayment system or Easy Monthly Installment system to improve the repayment structure for gold loans.
According to the report, gold loans worth Rs 1.4 lakh crore were disbursed by banks and other institutions as of September 30. This was reportedly a 51 per cent rise from the last year’s numbers.
