Loan against gold on rise, RBI raised concerns over irregular practices involved in gold loans

New Delhi [India] January 2 (ANI): The Gold loans in the country has registered strong growth recently says a report by Reserve Bank of India.

The report highlighted that the gold loans witnessed rapid growth in the period ending September 2024 compared to the same time a year earlier. This growth highlighted the increasing reliance on gold as collateral for meeting financial needs.

RBI said "Gold loans have clocked rapid growth in the period ending September 2024 as compared to a year ago"

However, the RBI in the report also raised concerns over irregular practices among certain supervised entities (SEs) involved in gold loans.

To address these issues, RBI said that it had issued guidelines on September 30, 2024, urging SEs to review their policies, processes, and practices for gold loans. The identified gaps include deficiencies in outsourcing practices, discrepancies in gold valuation, inadequate due diligence, and insufficient monitoring of the end use of loan funds.

These guidelines come in response to the rapid expansion of gold loan portfolios in some SEs and aim to ensure that the growth is sustainable and devoid of malpractices.

The report also noted that the Non-Banking Financial Companies (NBFCs) continue to dominate the gold loan segment.

The RBI stated that the NBFCs held a significant 59.9 per cent share of the total gold loans disbursed by banks and NBFCs combined as of March 2024. This reaffirms their pivotal role in catering to the demand for loans against gold jewelry and ornaments.

It said "NBFCs maintained their dominance in loans against pledge of gold ornaments and jewellery, with a share of 59.9 per cent of total gold loans (banks and NBFCs together) at end March 2024".

The report also noted a slowdown in credit growth in other retail lending categories. The growth in unsecured personal loans has declined notably since September 2023, while microfinance and self-help group (SHG) loans within the retail advances category have seen their growth rates drop by over two-thirds in the past year.

The RBI's emphasis on transparency and compliance underscores its commitment to safeguarding the interests of borrowers and maintaining financial stability.

As NBFCs continue to lead the gold loan segment, these regulatory measures are expected to bolster trust and efficiency in this critical lending market. (ANI)

(The story has come from a syndicated feed and has not been edited by the Tribune Staff.)