The Reserve Bank of India (RBI) has identified significant irregularities in the practices followed by Supervised Entities (SEs) in the granting of loans against the pledge of gold ornaments and jewellery. Following a review and onsite examination of selected SEs, the RBI highlighted several violations of prudential guidelines, raising concerns about transparency and risk management in this sector.
Key deficiencies observed include: shortcomings in 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; lack of transparency during the auction of gold ornaments and jewellery on default by the customer; weaknesses in monitoring of LTV; and incorrect application of risk-weights.
In response, the RBI has instructed all SEs to conduct a comprehensive review of their gold loan policies and procedures. Institutions have been urged to close operational gaps and implement remedial measures promptly. The RBI also emphasized the need for strict oversight of outsourced activities, especially as the gold loan portfolio has seen rapid growth in certain entities.
Supervised Entities have been given three months to report the actions taken to rectify these issues. The RBI warned that failure to comply with regulatory standards would lead to supervisory action.