RBI's strictness on gold loan companies, mandatory to give all information including auction to customers in the agreement

RBI has finally taken a firm stance against rising loopholes in gold loans. Now gold loan firms will need to see to it that a standardized process would be followed for verification of purity, weight, etc. of gold. This process should be followed uniformly in all the branches of the lender.

On Wednesday, RBI released a draft pertaining to gold loans. Under this, details of all processes would be put up on the website of lenders for information to customers. The loan will be sanctioned and the guarantee tested in the presence of customers. In the process of testing, the customer will be explained about deductions in terms of the weight of the stone, etc. The certificate issued should include details of this. The loan agreement should include details of the guarantee of gold pledged as security, price, details of the process of auction and terms for auction, and notice period to be intimated to the borrower for repayment/settlement of loan prior to conducting the auction.

All communications with borrowers, especially the terms of the loan or other important things that affect the interest of the borrower or the lender, must be explained in the customer's language. This will also include the loan violation in proportion to the determined gold value, etc. Illiterate customers will have to be explained the important terms and conditions in the presence of a witness.

Due to RBI's strictness, the shares of gold loan companies fell. Muthoot Finance fell by 6.70 percent. IIFL Finance closed down by 2.56 percent and Mananpuram Finance closed down by 1.75%.