By Siddhi Nayak
MUMBAI (Reuters) -India’s central bank on Wednesday proposed stricter guidelines for lenders disbursing gold-secured loans, aiming to enhance underwriting processes, improve collateral management and monitor the end-use of such funds.
Banks’ gold loans jumped 30% between September and February, sharply outpacing the growth in overall loans that was curtailed by tighter norms for unsecured lending. That surge in gold loans was despite the central bank’s warning in September that it found several irregular practices in the gold loan industry.
Now, the Reserve Bank of India (RBI) has proposed a raft of guidelines including establishing appropriate single-borrower limits and sectoral limits for lenders’ gold loan portfolios, mechanisms to ensure end-use, 75% loan-to-value ratio and standards of gold purity.
Furthermore, lenders can renew or top up gold loans only if the existing loans are not stressed and the permissible loan-to-value ratio has some headroom, the central bank said.
The RBI also said one gold collateral cannot be used for two different loans simultaneously and also barred lenders from issuing loans if the collateral is re-pledged or its ownership is doubtful.
It also made it incumbent on lenders to use a standardised procedure across all its branches to assess the weight and purity of the gold collateral.
It has also mandated that lenders periodically monitor and maintain documentary evidence of how a borrower is using the loaned amount.
Separately, the RBI also said that the pool of stressed assets being securitised by any financial institutions should be homogenous, meaning personal or business loans to individuals and small loans to micro enterprises be kept separate from other types of loans.
Additionally, in a separate circular, the RBI also proposed extending co-lending arrangements to all lending segments, widening their scope from being limited only to priority sector loans.
(Reporting by Siddhi Nayak; additional reporting by Swati Bhat and Jaspreet Kalra; Editing by Savio D’Souza)
