Editor’s Note
The Reserve Bank of India is set to issue comprehensive new rules for gold loans, citing existing concerns in the sector. Governor Sanjay Malhotra announced the review of guidelines for regulated entities, covering loans for both consumption and income-generation purposes.
RBI Governor Sanjay Malhotra announced on Wednesday that comprehensive rules will be issued for gold loans, given the existing concerns regarding loans secured by pledging gold jewelry. The guidelines for loans provided by Regulated Entities (REs) against the collateral of gold ornaments and jewelry, for both consumption and income-generation purposes, are being reviewed.
Draft guidelines in this regard are being issued for public comment. Following the announcement, shares of Muthoot Finance, IIFL Finance, Manappuram Finance, Cholamandalam Investment and Finance Company fell by up to 7 percent on Wednesday. The RBI has observed a sharp surge in gold loans across the country, reflecting the growing reliance on gold as collateral to meet financial needs.
According to an RBI report, the period ending September 2024 recorded rapid growth in gold loans compared to the same period a year ago. However, the central bank also expressed concern over irregularities observed among some Supervised Entities (SEs) involved in gold lending. To address these issues, the RBI issued comprehensive guidelines on September 30, 2024, directing SEs to review their policies, procedures, and practices.
The report identified several deficiencies, including shortcomings in outsourcing practices, discrepancies in gold valuation, and inadequate monitoring of the end-use of loan funds. These measures aimed to keep the rapid growth in gold loan portfolios sustainable and curb unfair practices.
Non-Banking Financial Companies (NBFCs) continue to dominate the gold loan segment. As of March 2024, NBFCs hold a 59.9 percent share of the total gold loans disbursed by both banks and NBFCs. This underscores their significant role in meeting the needs of borrowers who rely on gold ornaments and jewelry to obtain loans.