Gold Loan: RBI Governor Sanjay Malhotra said that the central bank will reconsider the rules of gold loan. Its purpose is to remove the flaws in the existing rules of gold loan. Actually, the central bank has found many shortcomings in the rules of gold loan. It wants to remove those shortcomings.
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Reserve Bank (RBI) has said that it will present new guidelines for gold loans. RBI Governor Sanjay Malhotra said this while presenting the monetary policy on 9 April. This had a direct impact on the stocks of gold loan companies. The shares of these companies fell by 10 percent. Gold loan customers are also a little worried about this announcement of the central bank. The question is whether RBI’s change in the gold loan rules will make it difficult for customers to get gold? Will gold loan companies and banks hesitate in giving gold loans to customers due to the change in rules?
Will customers face problems in getting gold?
RBI Governor Sanjay Malhotra said that the central bank will reconsider the rules of gold loans. Its purpose is to remove the flaws in the existing rules of gold loans. Actually, the central bank has found many shortcomings in the rules of gold loans. It wants to remove those shortcomings. Customers will not face any problem with the new rules of RBI. They will continue to get gold loans as before. It is also possible that after the change in rules, the interest of banks and gold loan companies in gold loans may increase.
What is the process of giving gold loan?
Malhotra said on April 9 that the central bank will soon introduce new rules for gold loan. Its purpose is to make the rules of gold loan more stringent. First of all, it is important to understand what is the process of gold loan. The customer takes a gold loan by pledging the gold jewellery, gold coins etc. kept at home with gold loan companies or banks. The gold loan company decides the value of the customer’s gold jewellery. It gives a loan of up to 75 percent of that value to the customer. The customer returns this loan to the bank in EMI every month. This also includes interest. Gold loan companies also give the customer the option of bullet payment. In this, the customer has to return the lump sum interest and loan amount on completion of the loan period.
How much interest rate do banks charge on gold loan?
Currently, banks charge interest between 9 to 27 percent on gold loan. The interest rate of banks is lower than that of gold loan companies. Since, gold loan companies and banks give loans to customers against their gold (gold jewellery), their money is completely safe. This means that they do not have to fear losing their money. The reason for this is that if for some reason the customer is unable to repay the gold loan amount, then the banks and gold loan companies recover their money by selling his gold jewellery. Therefore, this business has been very profitable for gold loan companies.
Why is there a boom in gold loans?
In the last few years, banks’ interest in gold loans has also increased. They find it a good source of income. They do not have the fear of sinking their money in it, while the interest rate is quite attractive. This is the reason why in the last few years, government and private banks have openly started giving gold loans to customers. Earlier, gold loan companies dominated the gold loan business. But now the situation has changed. Gold loans have become a good way of earning for banks.
When will the new rules for gold loans be implemented?
It is worth noting that RBI will first present the draft of the rules for gold loans. It will seek the opinion of common people and experts on it. After getting the opinion, the central bank will consider it. Then it will introduce new rules, which will have to be followed by banks and gold loan companies. This means that this process will take time. If customers feel that the rules for gold loans will change from tomorrow, then it is not so.
What is the need for RBI to make new rules?
Currently, the rules for gold loans are not the same. Banks and gold loan companies have to follow different rules for the same kind of product. RBI wants that there should be same rules for all regulated entities. The central bank will eliminate this difference in the new rules. Actually, RBI had found many irregularities in giving gold loans. Banks and gold loan companies are in a hurry in giving gold loans. They do not pay much attention to due diligence i.e. knowing the background of the customer.
What is lacking in the rules of gold loan right now?
Currently, banks and gold loan companies do not follow the same loan-to-value (LTV) ratio for giving gold loans. Even some gold loan companies are taking the services of fintech agents and third party companies for the storage of gold jewellery pledged by customers. Earlier gold loan companies used to do this work themselves. RBI does not consider the role of fintech and third party companies in gold loan storage to be appropriate. Apart from this, the process adopted by gold loan companies to auction gold jewellery when the customer does not repay the gold loan has also been found to have shortcomings. RBI believes that customers are most likely to suffer losses from these companies in the rules.
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