Gold loans in the country have registered strong growth recently, according to a report by the Reserve Bank of India. The report highlighted that gold loans witnessed rapid growth in the period ending September 2024 compared to the same time a year earlier. This growth underscores the increasing reliance on gold as collateral for meeting financial needs.
The RBI stated, "Gold loans have clocked rapid growth in the period ending September 2024 as compared to a year ago."
However, the RBI also raised concerns over irregular practices among certain supervised entities (SEs) involved in gold loans. To address these issues, the RBI mentioned that it had issued guidelines on September 30, 2024, urging SEs to review their policies, processes, and practices for gold loans.
The identified gaps include deficiencies in outsourcing practices, discrepancies in gold valuation, inadequate due diligence, and insufficient monitoring of the end use of loan funds. These guidelines come in response to the rapid expansion of gold loan portfolios in some SEs and aim to ensure that the growth is sustainable and free from malpractices.
The report also noted that Non-Banking Financial Companies (NBFCs) continue to dominate the gold loan segment. The RBI stated that NBFCs held a significant 59.9 per cent share of the total gold loans disbursed by banks and NBFCs combined as of March 2024. This reaffirms their pivotal role in catering to the demand for loans against gold jewellery and ornaments.
It said, "NBFCs maintained their dominance in loans against pledge of gold ornaments and jewellery, with a share of 59.9 per cent of total gold loans (banks and NBFCs together) at end March 2024."
The report also noted a slowdown in credit growth in other retail lending categories. Growth in unsecured personal loans has notably declined since September 2023, while microfinance and self-help group (SHG) loans within the retail advances category have seen their growth rates drop by over two-thirds in the past year.
The RBI's emphasis on transparency and compliance highlights its commitment to safeguarding borrowers' interests and maintaining financial stability. As NBFCs continue to lead the gold loan segment, these regulatory measures are expected to enhance trust and efficiency in this vital lending market.
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