The Indian government looks worried about gold loans, possibly on lack of transparency surrounding the utilisation of funds, experts told CNBC-TV18. In an exclusive conversation, Abizer Diwanji, who recently stepped down as head of financial services at EY, emphasised that the core issue at hand lies in the evolving business strategies of banks, particularly their increasing focus on retail lending.
He noted a trend wherein banks are leaning towards unsecured loans, with a significant portion of borrowers remaining unidentified.
This has raised eyebrows within regulatory circles and prompted a closer examination of the risks associated with such practices.
Diwanji further highlighted the growing frequency of regulatory interventions by the Reserve Bank of India (RBI) and characterised them as preemptive measures rather than responses to specific instances of fraud.
He explained that the RBI's actions aim to forestall potential financial bubbles, akin to recent market volatilities, which pose uncertainties regarding the implications for various lending practices.
"A clampdown is more a precursor, a worry that the central bank is looking at. It is not necessarily fraud, but it is a process-related issues that they are going to be concerned about. The only thing is that the frequency of it is causing a bit more of an alarm with too many things happening too quickly is what is causing the panic," he told CNBC-TV18.
Former Deputy Governor of RBI, SS Mundra, also emphasised the operational lapses in gold loan operations.
He suggested that while the issue doesn't necessarily reflect governance failure, there could be pressure on banks to meet targets, leading to compromises in operational controls.
The concern arises amidst a surge in gold loans, which reached ₹1.01 lakh crore by January 26, 2024, marking a 17% increase from the previous year.
This surge coincided with a 16.6% rise in gold prices.
Major banks like the State Bank of India (SBI), Punjab National Bank, and Bank of Baroda hold substantial gold loan portfolios.
A look at gold loan interest rates offered by key banks
| Name of the Bank | Interest Rate | Loan Amount |
| Axis Bank | 17% p.a. onwards | ₹25,001 to ₹25 lakh |
| HDFC | 8.50% p.a. to 17.45% p.a. | ₹25,000 onwards |
| Canara Bank | 9.60% p.a. | ₹5,000 to ₹35 lakh |
| Muthoot | 10.5% p.a. to 22% p.a. | ₹1,500 onwards |
| SBI | 8.75% p.a. - 9.60% p.a. | ₹20,000 to ₹50 lakh |
| Kotak Mahindra | 8.00% p.a. - 24.00% p.a. | ₹20,000 to ₹1.5 crore |
(Source: Bankbazaar)
The Finance Ministry has even directed Public Sector Banks (PSBs) to conduct a thorough review of their gold loan portfolios flagging instances of non-compliance with regulatory norms.
In a separate move last week, the Reserve Bank of India (RBI) directed IIFL Finance to cease and desist from sanctioning or disbursing gold loans, and assigning or securitising or selling any of its gold loans.
The central bank said it inspected the company with reference to its financial position as of March 31, 2023, and observed some material supervisory concerns in the gold loan portfolio.
The central bank also found breaches in the loan-to-value ratio and significant disbursal and collection of loan amounts in cash far in excess of the statutory limit.
(Edited by : Amrita)
First Published: Mar 14, 2024 2:25 PM IST
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