RBI Highlights Irregularities in Gold Loan Practices and Calls for Policy Review

RBI Highlights Irregularities in Gold Loan Practices and Calls for Policy Review

The Reserve Bank of India (RBI) has identified several irregular practices in the gold loan sector and issued a notification on September 30 urging lending institutions to review their policies. In a statement released on Monday, the central bank emphasized the necessity for immediate corrective actions to ensure compliance with regulatory guidelines and to safeguard customer interests.

Following a recent review, the RBI highlighted significant deficiencies in the management of gold-backed loans. Key issues identified include:

1. Valuing gold without the customer's presence.
2. Reliance on third parties for loan sourcing.
3. Insufficient diligence in the gold valuation process.
4. Lack of oversight during gold loan approvals.
5. Inadequate transparency in default scenarios during the auctioning of gold items.

The RBI also expressed concerns over mismanagement related to risk-weighting procedures and loan-to-value ratios. Lenders have been instructed to take corrective action within a three-month timeframe, with a warning that failure to comply could lead to supervisory measures from the central bank.

In its notification, the RBI urged lenders to conduct a thorough review of their policies, address the highlighted issues promptly, and implement necessary corrective measures.