The Aryavarth Express
Agency(New Delhi): The finance ministry has taken a decisive step by instructing all public sector banks to conduct a thorough review of their gold loan portfolios. This directive comes in light of several instances where banks have reportedly deviated from the established regulatory standards governing gold loans. Financial Services Secretary Vivek Joshi emphasized the necessity of this review, signaling the government’s intent to ensure strict adherence to both regulatory requirements and internal policies within these financial institutions.
The Department of Financial Services (DFS) has specifically pointed out issues in the banks’ current processes and systems related to gold loans. These issues include the improper disbursement of loans without the appropriate gold collateral, irregularities in fee collection, and anomalies in the cash repayment of gold loans. Banks have been advised to scrutinize their operations extensively over the last two years, from January 1, 2022, to January 31, 2024, to correct any discrepancies and to confirm that their lending practices are fully compliant.
This review is especially critical considering the significant rise in gold prices, which recently reached a record high. The fluctuating value of gold underscores the importance of accurate and compliant loan valuations. Major banks like the State Bank of India, Punjab National Bank, and Bank of Baroda, with substantial gold loan portfolios, are among those directly impacted by this directive.
The RBI’s norms cap the loan-to-value (LTV) ratio at 75% of the gold’s value, although temporary relaxations were introduced during the COVID-19 pandemic to alleviate financial stress. Despite these adjustments, recent supervisory activities, including the suspension of gold loan disbursements by IIFL Finance Ltd due to multiple concerns, highlight the urgent need for a systemic review and rectification where necessary. The RBI has made it clear that adherence to its guidelines is paramount, with the enforcement of supervisory restrictions pending the outcome of special audits and necessary corrections to ensure the integrity of the gold loan market.