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MUMBAI/BENGALURU (Reuters) -India’s central bank has found irregularities in the gold loan industry, it said on Monday, while asking the players to comprehensively review their processes and practices to identify and address regulatory lapses.
“Non-compliance with regulatory guidelines in this regard will be viewed seriously and will attract, among other things, supervisory action by the RBI (Reserve Bank of India),” the central bank said in a notification.
The RBI recently reviewed the practices of lenders on loans taken against gold ornaments and jewellery, the findings of which indicated “several irregular practices,” the central bank said.
The major deficiencies included shortcomings in the use of third parties for the sourcing and appraisal of loans, not valuing gold in the customer’s presence, inadequate due diligence and a lack of monitoring of borrowed funds, among others.
The RBI also found a lack of transparency during the auction of defaulter’s gold ornaments, weaknesses in monitoring loan-to-value ratios and incorrect application of risk-weights, it said.
The central bank has been encouraging lenders to strengthen governance standards and protect consumer interest, while warning against “all forms of exuberance”
It also has penalised entities and imposed business restrictions on a few non-compliant entities in the past.
Reuters reported in May that the central bank had asked certain gold loan-disbursing non-bank finance companies (NBFCs) to strictly adhere to a cap of 20,000 rupees ($240) in cash loans after finding lapses.
Regulated entities, such as banks and NBFCs, should initiate appropriate remedial measures in a timebound manner to address the lapses, the central bank said.
Lenders should also closely monitor their gold loan portfolio, especially in the light of significant growth seen in certain entities, it said.
These lenders should also ensure that adequate controls are in place over outsourced activities and third-party service providers, the central bank added.
(Reporting by Siddhi Nayak in Mumbai and Varun Hebbalalu in Bengaluru; Editing by Vijay Kishore and Anil D’Silva)