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The Reserve Bank of India (RBI) has broadly accepted K U B Rao committee report on gold loan sector and tightened the norms for gold non banking financial companies (NBFCs).
One of the most important recommendations of KUB Rao committee was to standardise the value of pledged gold.
Accepting the recommendation, the central bank said that the collateral should be valued at the average of the closing price for the preceding 30 days of 22 carat gold quoted by The Bombay Bullion Association Ltd. (BBA). The loan to value ratio (LTV) should be maintained at 60%, RBI reiterated.
If the gold is of purity less than 22 carats, the NBFC should translate the collateral into 22 carat and state the exact grams of the collateral and value the gold proportionately, said RBI in a circular to NBFCs.
RBI also said that NBFCs should take prior approval from the central bank to open branches beyond 1000. The existing companies which have branches over 1000, should take permission from RBI for opening further branches, Reserve Bank said. It also advised NBFCs to have proper security mechanisms in place at each branch for the security of pledged gold.
Without having proper security mechanisms, RBI won’t permit new branches, it said.
The NBFC should keep the record of verification of the ownership of the pledged gold in case of gold being pledged is over 20 grams at once or cumulatively by a single borrower, said RBI. The process to be followed for verification should be approved by the board of the company.
In case of auctioning of the gold pledged it should be carried in the same place or taluka (tehsil) where the branch is located, said RBI. At the auction, NBFCs should disclose reserve price of the gold in advance which shouldn’t be less that 85% of closing price for the preceding 30 days of 22 carat gold quoted by BBA, said central bank.
NBFCs should disclose the full details of the auction and any extra amount recovered should be paid to borrower. NBFCs should declare full details of auctions conducted during financial year including number of loan accounts, outstanding amounts, value fetched and whether any of its sister concerns participated in the auction, said RBI.
In the other instructions, central bank also asked NBFCs to stop misleading advertisements like loan in 3 minutes. If the loan is above Rs 5 lakh then NBFCs should insist on the copy of the PAN card of the borrower. Also all loans above Rs 1 lakh should be given only by the way cheque.
Documentation across all branches of NBFCs should be standardised, said Reserve Bank.
