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The Reserve Bank of India (RBI) has tightened gold loan norms for non-banking finance companies (NBFCs).

The Reserve Bank of India (RBI) has tightened gold loan norms for non-banking finance companies (NBFCs).

It has asked NBFCs accepting gold jewellery as collateral to value them at the average of the closing price of 22-carat gold for the preceding 30 days as quoted by The Bombay Bullion Association (BBA).

The RBI said “NBFCs should give in writing to the borrowers, on their letter heads, the purity (in terms of carats) and weight of the gold.”

If the gold is of purity less than 22 carats, “the NBFCs should translate the collateral into 22 carat, and state the exact grams of the collateral and value the gold proportionately,” the RBI said.

The loan-to-value (LTV) ratio for loans against jewellery would continue to be at 60 per cent, the RBI said while broadly accepting the K.U. B. Rao Committee report on gold loan sector.

In case the gold jewellery pledged by a borrower at any one time or cumulatively on loan outstanding is more than 20 gram, NBFCs must keep a record of the verification of the ownership of the jewellery. “The method of establishing ownership should be laid down as a board approved policy.”

The RBI directed the NBFCs to have board-approved policies on auction of gold jewellery that ``are transparent to the borrowers and adequate prior notice has been issued to them .”

It also stipulated that auction should be conducted in the same town or taluka in which the branch that has extended the loan is located.

While auctioning the gold, the NBFCs should declare a reserve price for the pledged ornaments.

“The reserve price for the pledged ornaments should not be less than 85 per cent of the previous 30-day average closing price of 22-carat gold as declared by the BBA and value of the jewellery of lower purity in terms of carats should be proportionately reduced,” the apex bank sid. It would be mandatory on the part of the NBFCs to provide full details of the value fetched in the auction, and the outstanding dues adjusted. Any amount over and above the loan outstanding should be payable to the borrower.

The RBI also asked NBFCs to disclose in their annual reports the details of the auctions conducted during the financial year, including the number of loan accounts, outstanding amounts, value fetched, and whether any of its sister concerns participated in the auction.

The RBI also stipulated that the high value loans of Rs. 1 lakh and above must only be disbursed by cheque, and the documentation across all branches must be standardised.

The RBI said that it would be mandatory for NBFCs to obtain prior approval of the Reserve Bank to open branches exceeding 1,000, and no new branches would be allowed to be opened without the facilities for storage of gold jewellery and minimum security facilities for the pledged gold jewellery.

The central bank asked NBFCs to provide minimum level of physical infrastructure and facilities in each of the branches engaged in financing against gold jewellery, including a safe deposit vault and appropriate security measures for operating the vault, to ensure safety of the gold and borrower convenience. The RBI asked existing NBFCs to review the arrangements in place at their branches and ensure that necessary infrastructure was put in place at the earliest.

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