What changed
RBI issued a circular on September 30, 2024, detailing irregular practices in gold loans observed during a review and onsite examinations. It advises all commercial banks, urban co-op banks, and NBFCs to comprehensively review their gold loan policies and processes. The circular takes immediate effect and requires a compliance report within three months.
What it means for you
Banks and lenders must urgently tighten gold loan operations, especially third-party sourcing, valuation, and LTV monitoring. Non-compliance will invite supervisory action. The focus on end-use monitoring and top-up loan identifiers aims to curb evergreening and misuse. Expect increased scrutiny on gold loan portfolios, particularly those with rapid growth.
What you must do
- Review and strengthen policies for gold loan sourcing, valuation, and disbursement, ensuring customer presence during valuation.
- Implement robust LTV monitoring systems and actively address breach alerts.
- Ensure correct application of risk weights and maintain proper documentation for agriculture gold loans.
- Create specific identifiers for top-up loans in CBS/LPS and conduct fresh appraisals for each top-up.
- Submit action taken report to RBI's Senior Supervisory Manager within three months.
Who it affects
All Commercial Banks (including Small Finance Banks but excluding Regional Rural Banks and Payments Banks), All Primary (Urban) Co-operative Banks, All Non-Banking Financial Companies
What are the key irregular practices RBI found in gold loans?
RBI found valuation without customer presence, inadequate due diligence, weak LTV monitoring, incorrect risk weights, lack of end-use monitoring for non-agri loans, and top-up loans without fresh appraisal, often used for evergreening.
What is the deadline for banks to report corrective actions?
Banks must inform the Senior Supervisory Manager of RBI within three months from September 30, 2024, about the actions taken to address the deficiencies.
Does this circular apply to Regional Rural Banks and Payments Banks?
No, the circular explicitly excludes Regional Rural Banks and Payments Banks from its scope.