The finance ministry has directed all state-owned banks to review their gold loan portfolio as cases of non-compliance with regulatory norms have been noticed by the government. The Department of Financial Services (DFS) in a communication addressed to heads of public sector banks asked them to look into their system and processes related to gold loan.
“We have asked banks to conduct a comprehensive review of the gold loan business,” Financial Services secretary Vivek Joshi told PTI.
A directive in this regard was issued last month advising them to fix anomalies related to collection of fees and interest and closure of gold loan accounts.
The letter flagged various concerns, including disbursement of gold loans without required gold collateral, anomalies regarding collection of fees and repayment in cash.
The DFS urged banks to conduct a thorough review of the last two-year period from January 1, 2022 to January 31, 2024 to ensure that all gold loans are disbursed in accordance with regulatory requirements and banks’ internal policies.
It should be noted that the price of the yellow metal has increased to a record level. Price of 10g gold in the last month jumped from Rs 63,365 to Rs 67,605.
According to the letter, the department found cases of non-compliance in the gold loan portfolio and hence issued the advisory.
The country’s largest lender, State Bank of India (SBI) alone has a gold loan portfolio of Rs 30,881 crore as of December 2023.
Punjab National Bank’s gold loan exposure was at Rs 5,315 crore while Bank of Baroda was at Rs 3,682 crore at the end of the third quarter.
As per the RBI norms, banks or gold loan finance firms can provide only 75 percent of the value of the jewellery. However, relaxation has been provided during the COVID-19 period to ease hardships.
The RBI has increased the permissible Loan to Value (LTV) for loans sanctioned by banks against pledges of gold ornaments and jewelery for non-agricultural purposes to 90 percent from 75 percent in August 2020. This relaxation was available till March 31 2021. .
Last week, the RBI barred IIFL Finance Ltd from disbursing gold loans, with immediate effect following multiple audit concerns, including major deviations in testing and certifying the purity of the yellow metal.
RBI said that the audit restrictions will be revised after completion of a special audit conducted by it and after the company corrects the special audit findings and the findings of RBI inspection to the satisfaction of the central bank.