NBFCs to Verify Ownership of Jewellery in Gold Loans

18 September 2013

Gold loan NBFCs have been directed by RBI to adhere to stricter practices in lending against gold. It has asked gold loan companies to keep verification of ownership of gold, follow standard procedure for valuation of collateral gold and have transparent auction procedures.

NBFCs should verify ownership of gold jewellery pledged

For all loans where jewelry pledged is above 20 grams, NBFCs mandatorily have to keep record of verification of ownership of the jewelry. NBFCs record ownership of gold jewelry pledged by their customers based on self-declaration. There are no rules on procedure for verification of jewelry ownership provided as loan collateral. Board of respective NBFCs lay down method of establishing ownership, which is approved as policy.

For loans above Rs 5 lakhs PAN card has been made mandatory. Loans above Rs 1 lakh will be disbursed only through cheque.

Standard method of valuation of gold collateral for all

From now on, gold loan borrowers can expect more transparency in valuation of their jewelry provided as collateral. Hitherto gold loan providers lacked a standard method for valuing gold. RBI has recommended a standard method for valuation of gold jewelry accepted as collateral. It will be valued at the average of the closing price of 22-carat gold for the preceding 30 days as quoted by The Bombay Bullion Association. If purity is less than 22 carats then it should be translated to corresponding grams of this purity. Gold loan companies will have to give in writing to customers about purity and weight of gold.

Transparency in auction of gold jewellery

NBFCs are required to disclose auction procedure in loan agreement to the customer, which will be followed in case of default in repayment. The lending NBFC is not allowed to participate in the auction. Moreover, auction is to be held in the same town or taluks as where the lending branch is located.

NBFCs have also been rebuked for ads promising gold loan in 1, 2 and 3 minutes. Customers have preferred NBFCs like Muthoot Finance, Mannapuram Finance, Muthoot Fincorp to banks for loan against gold jewelry for ease and fastness of loan approval. Compared to banks, NBFCs have less strict statutory requirements to comply with and have been able to attract customers.

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