 "Standard method to determine value of gold accepted as collateral: RBI")
Now, non-banking financial companies (NBFCs) offering loans against gold jewellery would have to follow a standard method to determine the value of gold accepted as collateral, the Reserve Bank of India (RBI) has said.
On Tuesday, the central bank introduced new norms for lending against gold jewellery, following the recommendations of the K U B Rao committee, which studied the issues related to gold imports and gold-loan NBFCs in India. "Currently, there is no standard method for arriving at the value of gold accepted as collateral and the valuation is arbitrary and opaque," RBI said.
It has been decided gold jewellery kept as security must 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 (BBA). If the purity of the jewellery is less than 22 carats, it would have to be valued proportionately. NBFCs would also have to provide borrowers the purity and weight of the gold accepted as collateral in writing.
RBI also stated NBFCs must create appropriate infrastructure for storage of gold ornaments. "It has been observed branches of some NBFCs that are predominantly into lending (50 per cent or more of the total financial assets) against gold jewellery lack the amenities for storage...This endangers the safety of the gold," it said.
Also, NBFCs should have a basic level of physical infrastructure, including a safe deposit vault and appropriate security measures, in each branch. No new branch can be opened without suitable storage arrangements and NBFCs must review these facilities at existing branches, too.
To open more than 1,000 branches, NBFCs would now need prior approval from RBI. "NBFCs that already have more than 1,000 branches may approach RBI for prior approval for any further branch expansion. Besides, opening any new branch wouldn't be allowed without the facilities for storage of gold jewellery and the minimum security facilities for the pledged gold jewellery," the central bank said.
To verify the ownership of gold, NBFCs must have a board-approved policy. In case the gold jewellery pledged by a borrower at any instance or cumulatively is more than 20 g, NBFCs would have to keep a record of the verification of the ownership of the jewellery. While auctioning the gold, NBFCs would have to declare a reserve price for the pledged ornaments; the reserve price must not be lower than 85 per cent of the previous 30-day average closing price of 22-carat gold, as declared by BBA. These companies would also have to provide the complete details of the value fetched in the auction and any amount over and above the due loan amount would have to be paid to the borrower.
The auctions must be conducted in the same town or taluka in which the branch that extended the loan is located. Also, prior notice must be given to the borrower.
In their annual reports, NBFCs must disclose the details of auctions conducted during a financial year.
RBI has also asked NBFCs to stop "misleading" advertisements, insist borrowers provide permanent account number cards (if the loan value exceeds Rs 500,000) and disburse loans exceeding Rs 1,00,000 only through cheques.
On Tuesday, the central bank introduced new norms for lending against gold jewellery, following the recommendations of the K U B Rao committee, which studied the issues related to gold imports and gold-loan NBFCs in India. "Currently, there is no standard method for arriving at the value of gold accepted as collateral and the valuation is arbitrary and opaque," RBI said.
It has been decided gold jewellery kept as security must 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 (BBA). If the purity of the jewellery is less than 22 carats, it would have to be valued proportionately. NBFCs would also have to provide borrowers the purity and weight of the gold accepted as collateral in writing.
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The loan-to-value ratio for advances against gold jewellery has been kept unchanged at 60 per cent.
RBI also stated NBFCs must create appropriate infrastructure for storage of gold ornaments. "It has been observed branches of some NBFCs that are predominantly into lending (50 per cent or more of the total financial assets) against gold jewellery lack the amenities for storage...This endangers the safety of the gold," it said.
Also, NBFCs should have a basic level of physical infrastructure, including a safe deposit vault and appropriate security measures, in each branch. No new branch can be opened without suitable storage arrangements and NBFCs must review these facilities at existing branches, too.
To open more than 1,000 branches, NBFCs would now need prior approval from RBI. "NBFCs that already have more than 1,000 branches may approach RBI for prior approval for any further branch expansion. Besides, opening any new branch wouldn't be allowed without the facilities for storage of gold jewellery and the minimum security facilities for the pledged gold jewellery," the central bank said.
| NEW NORMS FOR LENDING AGAINST GOLD JEWELLERY |
Determining value of pledged gold
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To verify the ownership of gold, NBFCs must have a board-approved policy. In case the gold jewellery pledged by a borrower at any instance or cumulatively is more than 20 g, NBFCs would have to keep a record of the verification of the ownership of the jewellery. While auctioning the gold, NBFCs would have to declare a reserve price for the pledged ornaments; the reserve price must not be lower than 85 per cent of the previous 30-day average closing price of 22-carat gold, as declared by BBA. These companies would also have to provide the complete details of the value fetched in the auction and any amount over and above the due loan amount would have to be paid to the borrower.
The auctions must be conducted in the same town or taluka in which the branch that extended the loan is located. Also, prior notice must be given to the borrower.
In their annual reports, NBFCs must disclose the details of auctions conducted during a financial year.
RBI has also asked NBFCs to stop "misleading" advertisements, insist borrowers provide permanent account number cards (if the loan value exceeds Rs 500,000) and disburse loans exceeding Rs 1,00,000 only through cheques.