look news india
New Delhi, 1 October (Hindustan Reporter). The Reserve Bank of India (RBI) has become strict after irregularities were found in the process of giving gold loans. Although this strictness of the Central Bank has been welcomed by the top brokerage companies of the country, but along with this they have also expressed the fear of impacting the growth of gold loans. A day earlier, RBI had issued a circular directing the lending entities (gold loan companies) to review their policies and portfolios and take immediate action. In this circular, companies have been warned to make substantial improvements in 3 months.
After the strictness of RBI, brokerage firm Morgan Stanley has issued a release saying that due to this strictness the growth of gold loans may decrease. Big companies giving gold loans may have to face a lot of problems due to this. Morgan Stanley has said that this strictness of RBI is necessary for the betterment of the gold loan market but it can create immediate problems for the companies. The release also said that the central bank has given 3 months time to the gold loan companies to rectify the irregularities. If companies make necessary improvements in this three-month period, then regulatory action by RBI can be averted. Similarly, Jefferies has also welcomed the strictness of RBI, calling it necessary. However, Jefferies has also expressed the fear that due to this strictness, the growth of gold loans will be affected in the coming days.
It is noteworthy that the Reserve Bank of India has issued a circular taking a strict stance after finding several irregularities in the functioning of entities giving loans against gold. According to the RBI, the entire process of gold loan was scrutinized including deficiencies in the source of loan and use of third parties for valuation, valuation of gold in the absence of customers, inadequate due diligence, failure to monitor the end-use of gold loan and jewellery. Irregularities like lack of transparency have been found during the auction.
Due to these irregularities, the Central Bank has directed all the companies involved in gold loan work to do a detailed review of their policies and procedures, identify the irregularities and make improvements in a timely manner. The RBI circular states that it should be ensured that gold loan companies have adequate control over outsourced activities and third party service providers.
It has been clarified in the RBI circular that the entities giving gold loans will inform the RBI about the action taken by them regarding rectification of all the irregularities within 3 months. A warning has also been given in the circular that if the guidelines of the central bank are not followed, then more strict action can be taken by the RBI.