Congress leader moves Adjournment Motion against changes in gold jewel loan rules

Senior Congress Leader and Lok Sabha Member Manickam Tagore has given adjournment notice on changes in gold jewel loan rules by the RBI.

In his letter to the Speaker Om Birla, Tagore said that under the new rules, customers are required to repay the entire principal amount along with the interest at the end of the loan tenure. Once done, the customer can renew or repledge their jewel for a new loan very next day. “This change in the repayment structure is likely to create significant hardship, especially for those already struggling with their finances,” Tagore said. 

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Earlier, the customers were allowed to repay only the interest accrued during the loan period. At the end of the tenure, they had the option to renew their loan account without repaying the entire principal amount. Change in rules could result in more distress for small borrowers and also in NPA for creditors.

The issue of gold loan and NPA (non-performing assets) has become big political issue as many MPs raised questions on this in both houses of the Parliament. In written reply to one such query on March 10, Finance Minister Nirmala Sitharaman informed that the gross non-performing assets (GNPAs) pertaining to gold loan in Scheduled Commercial Banks (SCBs) and Upper and Middle-Layer Non-Banking Financial Companies (NBFCs) have increased by 18.14 per cent from March 2024 to June 2024, and the gross GNPAs pertaining to gold loan in SCBs have increased by 21.03 per cent during the same period. Further, as on June 30, gross NPA ratio pertaining to gold loans in SCBs was 0.22 per cent and that of upper layer and middle layer NBFCs was 2.58 per cent

She also informed that in accordance with RBI guidelines, banks and NBFCs are taking several steps to mitigate the risk involved in gold loans and to ensure proper valuation of gold offered as collateral. These include, assessment and reassessment of gold offered as collateral at regular intervals to ensure purity of gold by various methods, such as acid tests, touchstone testing, X-ray fluorescence (XRF) analysis, etc. Also, auctioning of pledged gold is undertaken in case customer failing to repay the loan, while ensuring advance notice is sent to customers giving them sufficient time to clear the liability.

The Minister also said that to safeguard lenders against risks such as gold price fluctuations, valuation errors, etc., as per the extant RBI instructions, regulated entities including banks and NBFCs are not permitted to extend loans exceeding 75 per cent of the value of gold ornaments and jewellery. This Loan-to-Value (LTV) ratio of 75 per cent is required to be maintained throughout the tenure of the loan. Further, for loans where both interest and principal are due for payment at maturity of the loan (bullet repayment loans), banks are not permitted to extend loans exceeding tenure of 12 months from the date of sanction so as to reduce the risk of loan defaults.

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“To support the small borrowers, the aforesaid LTV ratio is not applicable to loans extended by SCBs for agriculture purpose, and in terms of RBI guidelines, lenders are permitted to make cash disbursements up to ₹20,000 in the case of gold loans,” she said.