Finance ministry directs state banks to review gold loan portfolios

The Finance Ministry has actually released a notification to all state-owned banks, prompting them to examine their gold loan portfolios due to circumstances of non-compliance observed by the federal government.

The Department of Financial Services (DFS), a part of the Finance Ministry, composed a letter to the heads of public sector banks, advising them to analyze their treatments worrying gold loans.

DFS sent out a letter on February 27, mandating all state-run banks to scrutinise each gold loan account provided after January 1, 2022. The objective was for banks to examine the worth of security in these accounts, research study collection charges, and guarantee there has actually been no inappropriate extension of loans.

“We have actually asked banks to carry out an extensive evaluation of the gold loan service,” stated Financial Services Secretary Vivek Joshi to news firm PTI.

This relocation comes amidst a boost in gold loans compared to the previous year.

Since January 26, loans versus gold jewellery totaled up to Rs 1.01 lakh crore, marking a 17 percent rise from the previous year, along with a 16.6 percent increase in gold costs.

The Finance Ministry clarified that it had actually observed circumstances of non-compliance in regard to the gold loan portfolio, triggering this guideline.

State Bank of India (SBI), the nation’s biggest lending institution, holds a gold loan portfolio of Rs 30,881 crore since December 2023. Punjab National Bank’s gold loan direct exposure stands at Rs 5,315 crore, and Bank of Baroda’s is Rs 3,682 crore as of the 3rd quarter.

According to RBI standards, banks or gold loan financing companies are just allowed to provide approximately 75 percent of the worth of the jewellery. Relaxations were offered throughout the COVID-19 duration to relieve challenge.

Just recently, the Reserve Bank of India enforced limitations on IIFL Finance Ltd, forbiding it from approving or paying out gold loans, to name a few activities.

This remained in reaction to variances in the gold loan-to-value ratio observed in a substantial portion of IIFL Finance’s gold loan accounts, as highlighted in RBI’s current audit. Furthermore, a significant variety of accounts have actually opted for auction due to customer defaults.

RBI has actually advised IIFL Finance to restrict its money dispensations at Rs 20,000, below the previous limitation of Rs 2 lakh. In reaction, IIFL specified its intent to adhere to statutory limitations once the freeze on the gold loan organization is raised.

While the effect of the restriction on IIFL Finance’s financials stays unsure, the business has actually revealed its dedication to dealing with RBI’s issues and bring back functional normalcy.