This letter from the Finance Ministry is also important because last week the Central Reserve Bank, while taking action against IIFL Finance, had banned the approval of new gold loans.
The government is keeping an eye on the gold loan accounts of government banks. In fact, the Finance Ministry has written a letter to public sector banks asking them to review the gold loan books. This letter is also important because last week the Central Reserve Bank, while taking action against IIFL Finance, had banned the approval of new gold loans.
What’s in the report
In the Economic Times report, sources said that the government and regulators are worried that due to the rise in gold prices, lenders i.e. banks may be planning to give top-up loans on existing loans. According to the report, the Department of Financial Services (DFS) of the Finance Ministry in the letter asked all the banks to review every gold loan account issued after January 1 and assess the collateral value of the gold loan. Along with this, it has also been asked to analyze the account, collection charges etc. The letter states that there are major concerns over the manner in which gold loans are being distributed without the required gold guarantee. It said discrepancies were observed in the collection of charges and interest applicable on gold-loan accounts and closing of the account.
Gold loan is increasing
This circular was issued in view of the increase in gold loans on year-on-year basis. Let us tell you that compared to the increase of 16.6% in gold prices, gold loans increased by 17%. On January 26, the loan against gold jewelery was Rs 1.01 lakh crore. At the same time, gold prices have reached Rs 66,880.00 per 10 grams.
Action taken on IIFL Finance
Let us tell you that the Reserve Bank had stopped IIFL Finance Limited from approving or distributing gold loans. The central bank said- Some concerns were found at the monitoring level in the gold loan portfolio of the company. These include lapses in testing and verification of purity and net weight of gold at the time of loan sanction and at the time of default auction.
