RBI Finds Irregular Practices In Loans Against Pledge Of Gold Ornaments, Entities Advised To Review Policy

New Delhi: The Reserve Bank of India has found irregular practices in the grant of loans against pledges of gold ornaments and jewellery by some entities. It has thus advised all "supervised entities" to comprehensively review their policies, processes, and practices on gold loans to identify gaps.

They have been asked to initiate appropriate remedial measures in a time-bound manner. RBI recently reviewed loans pledged against gold ornaments and jewellery.

The review, as well as the findings of the onsite examination of select supervised entities, indicate several irregular practices. The major deficiencies include shortcomings in the use of third parties for sourcing and appraisal of loans; valuation of gold without the presence of the customer; inadequate due diligence and lack of end-use monitoring of gold loans; lack of transparency during an auction of gold ornaments and jewellery on default by the customer; weaknesses in the monitoring of loan to value (LTV); and incorrect application of risk-weights.

Against that backdrop, RBI said that the gold loan portfolio should be closely monitored, especially in light of significant growth in the portfolio in certain entities."It should also be ensured that adequate controls are in place over outsourced activities and third-party service providers," RBI said.

Action taken should be informed to the Senior Supervisory Manager (SSM) of the Reserve Bank within three months. Any non-compliance with regulatory guidelines will be viewed seriously and will attract, among other things, supervisory action.