RBI to Introduce New Regulations for Gold Loans
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Synopsis
RBI Governor Sanjay Malhotra has announced plans to issue new guidelines for gold loans, addressing concerns about prudential norms and conduct-related issues. The draft is open for public comment, reflecting the rising dependence on gold as collateral in financial transactions.
Key Takeaways
- RBI to issue new gold loan regulations.
- Focus on harmonizing prudential norms across entities.
- Public feedback sought on draft guidelines.
- Sharp increase in gold loan demands noted.
- NBFCs hold a major share in gold loan market.
Mumbai, April 9 (NationPress) RBI Governor Sanjay Malhotra declared on Wednesday the decision to introduce comprehensive regulations regarding prudential norms and conduct-related aspects for gold loans in response to rising concerns on the matter.
The revision of guidelines for lending against gold jewellery and ornaments as collateral, provided by regulated entities (REs) for purposes of consumption and income generation, is being addressed.
“Regulations pertaining to prudential and conduct have been issued periodically, differing across various categories of REs. To standardize these regulations while considering their risk profiles and addressing observed concerns, comprehensive regulations will now be established,” Malhotra stated.
The draft guidelines are being released for public feedback.
Shares of Muthoot Finance, IIFL Finance, Manappuram Finance, and Cholamandalam Investment saw declines of up to 7 percent on Wednesday following the announcement.
The RBI noted a significant rise in gold loans nationwide, indicating a growing reliance on gold as collateral for financial needs. An RBI report indicated substantial growth in gold loans for the period ending September 2024, compared to the same timeframe the previous year.
Nevertheless, the central bank raised alarms about irregular practices noted among certain supervised entities (SEs) engaged in gold lending. To tackle these issues, the RBI issued detailed guidelines on September 30, 2024, instructing SEs to reassess their policies, procedures, and practices.
The report highlighted multiple gaps, including flaws in outsourcing practices, inconsistencies in gold valuation, lack of thorough due diligence, and insufficient monitoring of loan fund utilization. These initiatives are designed to ensure that the rapid expansion of gold loan portfolios remains sustainable and devoid of malpractice.
Non-Banking Financial Companies (NBFCs) still dominate the gold loan sector, controlling a significant 59.9 percent of the total gold loans disbursed by both banks and NBFCs as of March 2024. This underscores their vital role in serving borrowers who depend on gold jewellery and ornaments as a means to secure loans.
