The RBI plans to introduce stricter guidelines for gold loans to improve business ethics, enhance financial stability, and address recent audit findings. Proposed changes involve stricter borrower checks and detailed fund usage tracking.
The RBI is urging banks and NBFCs to enhance borrower background checks and verify gold ownership when issuing loans to promote standard protocols and restrain unchecked growth in the gold loan sector. This measure aims to prevent unethical practices and maintain financial stability as the industry expands rapidly.
Since September 2024, banks have experienced a 50% surge in gold loans due to stricter lending rules and festive gold buying traditions in India, the world’s second-largest gold consumer. High prices have further boosted the appeal of gold loans amidst rising demand for festivals and weddings.
In September, the RBI uncovered irregular practices in the gold loan industry. Regulators now urge lenders to review and rectify lending processes for regulatory compliance. Audits in the past year revealed problems in non-bank lenders’ portfolios and their monitoring of gold-backed lending limits.
The RBI highlighted problems with loan sourcing and gold valuation, not all entities following rules. Audits found fintech agents of banks handling tasks like gold collection, storage, and weighing, tasks typically done by lenders. Lenders have auctioned gold without informing defaulting borrowers.
Sources News From Various Digital Platforms, Websites, Journalists, And Agencies.
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