Gold Loan: RBI found irregularities in giving gold loans!
The bank OF INDIA' target='_blank' title='reserve bank of india-Latest Updates, Photos, Videos are a click away, CLICK NOW">reserve bank of india (RBI) has identified some important facts in the system of giving gold loans, after which there have been major changes in this sector. According to a report by the Times of India, lenders are now turning to EMI and term loans from traditional bullet repayment options to overcome regulatory issues.
RBI found irregularities in giving gold loans
RBI on september 30 reported irregularities in giving loans against gold jewelery and jewelery. These included gaps in loan sourcing, valuation processes, monitoring of end use funds, auction transparency and compliance with loan-to-value (LTV) ratio norms. The report said that the central bank has also criticized the practice of partial payments and loan rollovers, besides warning of possible mistakes. A senior banking official said, it is clear from the RBI's order that it wants lenders to thoroughly check the borrower's repayment capabilities and not depend only on collateral (asset).
What is the current model of gold loan?
At present, the bullet repayment model is mainly followed for gold loans. Here the borrower pays the entire principal and interest at the end of the loan. Alternatively, partial payments are accepted during the period. However, to reduce the risk, RBI is insisting on immediate EMI-based repayment options.
The gold loan sector has seen tremendous growth recently, which is due to the rising price of gold and limited access to unsecured credit. According to Crisil, retail loans issued by banks against gold grew by 37 percent between april and august this year. According to the report, NBFCs focused on gold loans have increased assets under management by 11 per cent in the first quarter of FY 2024-25. According to TOI, Prakash Agarwal, partner at Gefion Capital, has alerted that a possible correction in gold prices is not good, as falling collateral values may lead to challenges like refinancing and if this happens, repayment capacity will come under pressure.