RBI Issues 3-month Ultimatum To Banks And NBFCs To Revamp Gold Loan Policies

The Reserve Bank of India (RBI) has issued a 3-month ultimatum to banks and non-banking financial companies (NBFCs) to strengthen their gold loan policies. This directive aims to address irregular practices, including concealing non-performing assets (bad loans), which have been a concern for the regulator. The RBI has called on financial institutions to conduct a thorough review of their gold loan policies, identify any gaps, and rectify shortcomings to ensure better transparency and governance in this segment.

During these 3 months, banks and NBFCs are expected to submit a detailed plan outlining the reforms they intend to implement in their gold loan policies. The RBI emphasised that failure to comply with this directive could result in regulatory action. This move is part of the RBI’s broader efforts to enhance the overall health of the banking sector and ensure that financial institutions adhere to sound lending practices, especially in the high-demand area of gold-backed loans.

RBI has adopted this strict attitude towards gold loans because the regulator had found many irregularities in gold loan operations during the investigation. During the gold loan review, it was found that top-up loans were being used without new assessment and loans were being given even after partial payment.

A gold loan is a secured loan offered against the pledge of gold jewellery. In this type of loan, the amount granted by the bank or financial institution is determined by the current market price of the pledged gold. One of the key advantages of a gold loan is its accessibility and ease of processing, making it different from other types of loans that often require extensive documentation.

For a gold loan, minimal paperwork is needed, typically requiring only identity and address proof. The loan is disbursed quickly, often within a few hours. This fast processing makes gold loans particularly attractive for individuals in need of quick funds. Additionally, since the loan is secured by the gold itself, it is less risky for the lender, which can lead to lower interest rates compared to unsecured loans.