Banks Use System Loopholes to Comply With RBI Gold Loan Norms

Adopt various strategies to achieve financial objectives and maintain customer satisfaction

- B ANBUSELVAN @Chennai

The new strict guidelines of the Reserve Bank of India (RBI) for gold loans have led private and nationalised banks, co-operative banks and Non-Banking Financial Companies (NBFCs) to adopt various strategies to comply with the norms, which restrict the closure of gold loans within 12 months.

Under the new norms, the maximum tenure for gold loans with monthly instalments has been reduced from 36 months to 12 months. Although the new norms are giving a hard time, particularly to economically vulnerable borrowers, the banks have begun leveraging loopholes in the system to comply with the RBI regulations while maintaining profitability and customer satisfaction.

When TNIE visited branches of private and nationalised banks in Chennai, the branch staff explained that they employ many strategies, including monthly auto-debit of interest from savings accounts, technical closures—wherein loans are temporarily repaid and immediately renewed with fresh documentation, closure of loans and re-pledging under a family member's name by simply paying the interest, automatic settlement of dues by debiting from savings account, and expediting the auction process to minimise defaults after the 12-month loan tenure ends.

A branch manager of a nationalised bank in Chennai explained, "Most customers who took gold loans last year believed they could renew them by paying only the interest. Some customers are now unable to fully repay their loans or are forced to borrow from moneylenders. In such cases, we advise them to bring a family member, open a basic savings account in their name, and then pledge the same jewellery under the relative's name. The loan amount is used to settle the original borrower's dues on the same day."