The Reserve Bank of India (RBI) on September 30 said that it has observed irregular practices in granting of loans against a pledge of gold ornaments and jewellery in select supervised entities (SEs).
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, and inadequate due diligence and lack of end use monitoring of gold loans, the RBI said in a release.
Further, the deficiencies also include lack of transparency during auction of gold ornaments and jewellery on default by the customer, weaknesses in monitoring of LTV, and incorrect application of risk-weights, the release added.
The central bank found this out after carrying out a review of the adherence to prudential guidelines as well as practices being followed by SEs with regard to loans against pledge of gold ornaments and jewellery.
The review as well as the findings of the onsite examination of select SEs by the Reserve Bank revealed several irregular practices in this activity, the release further stated.
The RBI has advised all SEs to comprehensively review their policies, processes and practices on gold loans to identify gaps, including those highlighted in this advice, and initiate appropriate remedial measures in a timebound manner.
Action taken with regard to the above may be informed to the Senior Supervisory Manager (SSM) of the Reserve Bank within three months of the date of this circular, the release said.
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