Gold Loans See Rapid Growth in India, RBI Flags Irregularities Among Lenders

RBI urges supervised entities to address valuation gaps, outsourcing issues, and compliance concerns in gold loan practices.

New Delhi, January 2: Gold loans in India have witnessed remarkable growth in the financial period ending September 2024, reflecting an increasing reliance on gold as collateral to meet financial needs, according to a Reserve Bank of India (RBI) report.

The RBI highlighted this surge, stating, “Gold loans have clocked rapid growth in the period ending September 2024 as compared to a year ago.”

RBI Flags Regulatory Concerns

Despite the robust growth, the RBI raised concerns over irregularities in the practices of certain Supervised Entities (SEs) offering gold loans. Key issues flagged include:

• Deficiencies in outsourcing practices
• Discrepancies in gold valuation
• Inadequate due diligence processes
• Insufficient monitoring of loan fund usage

To address these concerns, the RBI issued new guidelines on September 30, 2024, directing SEs to review and strengthen their policies and practices. The guidelines aim to ensure sustainable growth in the gold loan segment while minimizing malpractices.

NBFCs Lead Gold Loan Market

The report revealed that Non-Banking Financial Companies (NBFCs) continue to dominate the gold loan market, holding a 59.9% share of the total gold loans disbursed by banks and NBFCs combined as of March 2024.

“NBFCs maintained their dominance in loans against the pledge of gold ornaments and jewellery, with a share of 59.9% of total gold loans (banks and NBFCs together) at end March 2024,” the report stated.

Slowdown in Other Retail Lending Categories

The report also observed a slowdown in credit growth across other retail lending categories, including:

• Unsecured personal loans witnessing a notable decline since September 2023.
• Microfinance and Self-Help Group (SHG) loans, with growth rates dropping by over two-thirds in the past year.

Focus on Transparency and Compliance

The RBI emphasized transparency and regulatory compliance, underscoring its commitment to protect borrowers’ interests and ensure financial stability in the lending sector.

As NBFCs continue to dominate the gold loan market, these regulatory measures are expected to bolster trust, transparency, and efficiency in this essential financial segment.