India has witnessed a significant rise in gross non-performing assets (GNPAs) related to gold loans in scheduled commercial banks (SCBs) and non-banking financial companies (NBFCs).
According to the Ministry of Finance, GNPAs in these institutions increased by 18.14 pc between March and June 2024. Finance Minister Nirmala Sitharaman shared this data while responding to questions in the Lok Sabha during the Question Hour.
The minister further stated that within SCBs, gold loan GNPAs saw a sharper rise of 21.03 pc in the same period.
As of June 30, 2024, the gross NPA ratio for gold loans in SCBs stood at 0.22 pc, while for upper and middle-layer NBFCs, it was notably higher at 2.58 pc. These figures indicate growing stress in the gold loan segment, which has been a popular borrowing option for individuals and businesses.
The issue of rising gold loan defaults has also led to an increase in gold auctions by lenders. DMK leader Kanimozhi Karunanidhi raised concerns about the rapid pace of gold auctions conducted by NBFCs and banks.
Responding to these concerns, Sitharaman assured that strict regulations govern the auctioning process, ensuring fairness and transparency.
She explained that financial institutions must follow well-laid-out procedures before conducting a gold auction. These include ensuring the auction takes place within the borrower's district and in their presence, obtaining proper valuation of the gold, and setting the minimum bid price based on market rates.
The minister clarified that NBFCs cannot arbitrarily determine gold prices, as they rely on rates set by the Bombay Bullion Association, which updates the market price daily.
The finance minister reaffirmed that any violation of these established norms would be dealt with appropriately. She invited specific details on any reported breaches and assured that action would be taken if banks or NBFCs failed to adhere to the rules.
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