RBI to issue new guidelines for gold loans

The review of guidelines for lending against the collateral of gold jewellery and ornaments are extended by regulated entities (REs) for both consumption and income-generation purposes.

"Prudential and conduct-related regulations for such loans have been issued from time to time, and they vary for different categories of REs. With a view to harmonizing such regulations across REs while keeping in view their risk-taking capabilities and also to address a few concerns that have been observed, it has been decided to issue comprehensive regulations on prudential norms and conduct-related aspects for such loans," Malhotra said.

The draft guidelines in this regard are being issued for public comment.

Shares of Muthoot Finance, IIFL Finance, Manappuram Finance, Cholamandalam Investment and Fin Co fell up to 7 per cent on Wednesday after the announcement.

The RBI had observed a sharp surge in gold loans across the country, reflecting an increasing dependence on gold as collateral to meet financial needs. According to an RBI report, gold loans saw significant growth in the period ending September 2024 compared to the same period a year earlier.

However, the central bank also raised concerns over irregular practices observed among certain supervised entities (SEs) involved in gold lending. To address these issues, the RBI issued comprehensive guidelines on September 30, 2024, directing SEs to review their policies, processes, and practices.

The report identified several gaps, including deficiencies in outsourcing practices, discrepancies in gold valuation, inadequate due diligence, and insufficient monitoring of the end use of loan funds. These measures aim to ensure that the rapid growth in gold loan portfolios remains sustainable and free from malpractice.

Non-Banking Financial Companies (NBFCs) continue to dominate the gold loan segment, holding a substantial 59.9 per cent share of total gold loans disbursed by both banks and NBFCs as of March 2024. This underscores their critical role in catering to borrowers who rely on gold jewellery and ornaments for securing loans.