The Reserve Bank of India (RBI) has issued a stern warning to banks and gold loan companies, expressing displeasure over the lapses in gold loan disbursement. Due to which the gold loan industry is not thinking of bringing a monthly repayment scheme. Under this scheme, banks and gold loan companies can ask borrowers to repay the loan in monthly installments including interest and principal after loan origination. It was reported that banks offering gold loans are also looking for such avenues to offer gold loans to customers.
According to a report in The Economic Times, a senior bank official mentioned that the RBI directive clearly states that the institution wants gold loan companies to check the repayment capacity of borrowers and not just rely on the jewelery pledged. Thus, banks are now planning to introduce monthly repayment options for gold loans to make loan repayment easier.
In a circular dated September 30, the RBI pointed out irregularities related to disbursement of loans against gold ornaments and jewellery. The apex bank identified issues related to gold loan sourcing, valuation, auction transparency, monitoring of loan-to-value (LTV) ratio and risk-weighting. He also mentioned that extending the payment period by accepting partial payments is also an unhealthy practice.
Generally, gold loan companies offer a bullet repayment option, which allows borrowers to pay off the entire loan amount at the end of the term without paying any monthly amount. Another common practice is allowing borrowers to make partial payments and extend repayment terms whenever they have funds available.
In light of RBI’s concerns and warnings, banks and non-banking financial companies are now considering introducing a monthly payment system or simplified monthly installment system to improve the repayment structure for gold loans.
According to the report, as of September 30, banks and other institutions have collected Rs. 1.4 lakh crore gold loans were disbursed. This was a 51 percent increase over last year’s figures.