The Reserve Bank of India (RBI) has issued a circular expressing significant concerns regarding the practices surrounding gold loans provided through partnerships with fintech companies and business correspondents.
The central bank's notification highlights several issues, including gold valuations being conducted without customers present, credit appraisals handled by the business correspondents themselves, and the custody of gold being managed inadequately.
Additionally, the RBI pointed out unsafe transportation methods for gold to branches and lapses in Know Your Customer (KYC) compliance, which are primarily managed by fintech entities. The circular also noted the risks associated with using internal accounts for loan disbursement and repayment.
The RBI's intervention comes at a time when the gold loan market is projected to exceed Rs 10 lakh crore by the end of FY25, with expectations of surpassing Rs 15 lakh crore by FY27, according to a report from Icra Ratings.
In light of this significant growth, the RBI has urged all supervised entities (SEs) to conduct thorough reviews of their gold loan policies, processes, and practices. They must identify any gaps and implement corrective measures promptly. The RBI emphasised the necessity for close monitoring of gold loan portfolios, particularly in sectors experiencing rapid growth, and called for robust controls to be established for outsourced activities and third-party service providers.
Furthermore, the RBI has mandated that SEs report their actions regarding these issues to the Senior Supervisory Manager (SSM) within three months. The central bank has made it clear that noncompliance with these regulatory guidelines will be taken seriously and could lead to supervisory action.
