Public sector banks asked to carry out comprehensive review of gold loan portfolios

The government has directed Public Sector Banks (PSBs) to conduct a thorough review of their gold loan portfolios. Instances of non-compliance with regulatory norms have been flagged by the government, prompting this action.

PSBs have been instructed to scrutinise their systems and processes concerning gold loans.

The directive encompasses rectifying anomalies related to gold loan disbursement without collateral, fee and interest collection, closure of gold loan accounts, and cash repayments.

Vivek Joshi, Secretary of the Department of Financial Services (DFS), said, "We have asked banks to undertake a comprehensive review of the gold loan business."

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.

It observed some material supervisory concerns in the gold loan portfolio of IIFL Finance, including serious deviations in assaying and certifying purity and net weight of the gold at the time of sanction of loans and at the time of auction upon default.

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.