Editor’s Note
The Reserve Bank of India is mandating stricter, standardized procedures for gold appraisal across all branches of lending institutions to address rising concerns over loan deficiencies. This move aims to enhance transparency and consistency within the gold loan sector.
The Reserve Bank of India (RBI) has toughened its stance on the increasing deficiencies in gold loans. Gold loan companies must now ensure that a standardized process is adopted for checking the purity, weight, etc., of gold. This process must be implemented uniformly across all branches of the lender.
The RBI issued a draft related to gold loans on Wednesday. According to it, details of all procedures will be displayed on lenders’ websites for customer information. Lenders will sanction loans and conduct guarantee testing only in the presence of the customer. The customer will be explained about deductions related to stone weight, etc., during the testing process. The certificate issued will include details of this. The loan agreement must include details of the gold taken as security, its value, information on the auction process, conditions for auction, and details of the notice period given to the borrower for loan repayment/settlement before an auction is held.
All communication with borrowers, especially loan terms or other important matters affecting the interests of the borrower or lender, must be conveyed in the customer’s language. This will also include details like the loan-to-value ratio against the assessed gold value. Important rules and terms must be explained to illiterate customers in the presence of a witness.
Due to the RBI’s strictness, shares of gold loan companies declined. Muthoot Finance fell by 6.70%. IIFL Finance closed down 2.56% and Manappuram Finance closed 1.75% lower.