The gold loans are coming under more attention as the Reserve Bank of India is set to impose more stringent rules on banks that offer loans against gold. The central bank is planning to strengthen the due diligence process and make the lenders assure of the use of the funds advanced to the borrowers. This decision has been made as the RBI is trying to keep a check on the growth of the gold loan sector which has seen a rise recently.
In an attempt to ensure that all the financial institutions are treated equally, the RBI is going to demand that banks and NBFCs carry out more stringent due diligence on the clients they lend money to. They will also be required to establish the ownership of the gold that has been presented as collateral. According to sources, the RBI wants to stop unscrupulous lending and to maintain stability in the sector.
It has been observed that there is a growing trend in the gold loans, which has increased almost 50% in the segment between September 2024 and September 2024. This increase is mainly because of the fact that, with the new regulations, unsecured loans are not easily available, thus, making gold backed loans more attractive to borrowers. This has been after India, the second largest consumer of gold, setting a record in the purchase of gold at an astronomical price to buy gold to celebrate weddings and other ceremonies.
Nevertheless, the fast growth in the gold loan sector has caused anxiety to regulators, and so the RBI has had to step in and ensure that there is more order in the way of lending in the sector. These issues are expected to be resolved by the new regulatory framework and to make sure that the banks and other financial institutions become more sensible in their decisions
