Gold loan outstanding of banks rises 43.4% in 1st half of FY25
Sat Nov 02 2024
Banks have reported a steep 43.4 per cent rise in gold loan disbursements in the first six months (April-September) of the current financial year (2024-2025 or FY25) amid the sustained rally in gold prices and certain deficiencies in a loan segment flagged by the Reserve Bank of India (RBI) recently.
With customers queuing up to pledge gold to take advantage of high prices, gold loan outstandings of banks jumped to Rs 147,081 crore as of September 2024 as against Rs 102,562 crore in March 2024, according to the latest RBI data. If the gold loan assets of non-banking financial companies (NBFCs) are also taken into account, gold loan book of banks and NBFCs would have crossed the Rs 3 lakh crore mark. Gold loan assets under management of Muthoot Finance was at Rs 75,827 crore, and it holds 188 tonnes of gold pledged by customers as of March 2024.
The sudden jump in gold loans forced the central bank to ask gold loan financiers to review policies, processes and practices while offering such loans. The RBI’s direction came after it found deficiencies in loans offered by supervised entities (SEs) against pledge of gold ornaments and jewellery.
Some irregularities included shortcomings in the use of third parties for sourcing and appraisal of loans, valuation of gold without the presence of the customer, inadequate due diligence, and lack of end use monitoring of gold loans and lack of transparency during auction of gold ornaments and jewellery on default by the customer.
The RBI, in its review, also found weaknesses in monitoring of LTV (loan-to-value ratio) and incorrect application of risk-weights. The central bank observed that in gold loans granted through partnership with fintech entities/ business correspondents (BC), practices such as valuation of gold being carried out in the absence of customer, credit appraisal and valuation done by the BC itself, delayed and insecure mode of transportation of the metal to the branch and KYC compliance being done through fintechs.
The RBI also found that in some of the gold loan players, the share of gold loans disbursed in cash to total gold loans disbursed was high. Also, the statutory limit specified under the Income Tax Act, 1961 on cash mode of disbursal was not adhered to in many cases. Many loan accounts were closed within a short time from sanction, i.e. within a few days raising doubts over the economic rationale for such an action.
Source: https://indianexpress.com