The Reserve Bank has recently carried out a review of the adherence to prudential guidelines as well as practices being followed by SEs with regard to loans against pledge of gold ornaments and jewellery.
The review, as well as the findings of the onsite examination of select SEs by the Reserve Bank, indicate several irregular practices in this activity.
The major deficiencies include
(i) shortcomings in use of third parties for sourcing and appraisal of loans;
(ii) valuation of gold without the presence of the customer;
(iii) inadequate due diligence and lack of end use monitoring of gold loans;
(iv) lack of transparency during auction of gold ornaments and jewellery on default by the customer;
(v) weaknesses in monitoring of LTV; and
(vi) incorrect application of risk-weights, etc.
All SEs are, therefore, advised to comprehensively review their policies, processes and practices on gold loans to identify gaps, including those highlighted in this advice, and initiate appropriate remedial measures in a time bound manner. Further, the gold loan portfolio should be closely monitored, especially in the light of significant growth in the portfolio in certain SEs. It should also be ensured that adequate controls are in place over outsourced activities and third-party service providers.
Action taken with regard to the above may be informed to the Senior Supervisory Manager (SSM) of Reserve Bank within three months of the date of this circular. Non-compliance with regulatory guidelines in this regard will be viewed seriously and will attract, among other things, supervisory action by RBI.
Link – https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12735&Mode=0
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