FinMin asks PSU banks to review gold loan portfolio

New Delhi, March 13: The finance ministry has directed all state-owned banks to review their gold loan portfolio as instances of non-compliance with regulatory norms have been noticed by the government.

The department of financial services (DFS) in a communication addressed to heads of public sector banks has asked them to look at their system and processes related to gold loan.

“We have asked banks to undertake a comprehensive review of the gold loan business,” financial services secretary Vivek Joshi said.

A directive in this regard was issued last month advising them to fix anomalies relating to collection of fees and interest and closure of gold loan accounts.

The letter flagged various concerns, including disbursement of gold loans without requisite gold collateral, anomalies regarding collection of fees and repayment in cash.

The DFS urged banks to undertake a thorough review of the last twoyear period from Jan. 2022 to Jan. 2024 so as to ensure that all gold loans were disbursed in compliance with regulatory requirements and internal policies of banks.

It is to be noted that the price of the yellow metal has surged to a record level. Price of 10 gm gold in the last one month has jumped from `63,365 to `67,605.

According to the letter, the department has come across instances of noncompliance regarding the gold loan portfolio and hence issued the advisory.

As per the RBI norms, banks or gold loan finance firms can provide only 75 per cent of the value of the jewellery.

However, relaxation was provided during the Covid period to mitigate hardship.

The RBI had increased the permissible Loan to Value (LTV) for loans sanctioned by banks against pledges of gold ornaments and jewellery for non-agricultural purposes to 90 per cent from 75 per cent in August 2020. This relaxation was available till March 2021.