MUMBAI: The RBI has issued draft regulations for loan against gold ornaments as 'collateral' to move towards a more 'principle-based and harmonised regulatory framework.'
It will address conduct-related gaps among lenders. The regulatory objectives behind such revised directions are to put in place a 'harmonised framework' for such loans applicable across various regulated entities, and to address concerns over a few of the lending practices being followed.
"These draft directions shall apply to all gold loans offered by lenders, including small finance banks, regional rural banks, excluding payments banks, co-operative banks and all non-banks and housing finance companies," the draft circular said.
The norms for lending against gold collateral shall have to be included in the credit/risk management policy of the lenders, said the draft guidelines.
Lenders shall have to put in place 'proper systems and controls' to ensure that the end-use of these loans are periodically monitored and recorded.
All loan renewals, and top-up loans, shall be sanctioned if the existing loan is classified as 'standard', and there is headroom available within the permissible Loan To Value (LTV) ratio (which banks offer at 60-65 per cent and non-banks offer up to 70-75 per cent now), said the draft.
"Lenders shall not grant any advance against primary gold or silver, backed by similar units of exchange-traded funds (ETFs) or mutual funds," the RBI draft said.
It added that the same gold collateral will 'not be permitted to be used concurrently' for extending loans for income-generating purposes or consumption loans.
Lenders shall not be allowed to extend loans against any re-pledged gold collateral, said the RBI. "Lenders shall also not extend loans where ownership of the collateral is doubtful", said the draft.