PSU banks ordered to test purity of gold loan book
finance ministry ordered state-run banks to review gold loan processes amid fears about risky debt given a rally in prices of the metal, said people familiar with the matter. The worry is that the surge led to lenders giving top-up loans over existing debt, said people familiar with the matter.
In a February 27 letter to all PSU bank chiefs, the department of financial services (DFS), part of the finance ministry, has asked banks to review every gold loan account since January 1, 2022, assess the collateral value, analyse collection charges and check if there has been any evergreening.
The concern comes amid a 17% rise in gold loans on a year-on-year basis and a 16.6% rally in the yellow metal's prices. Loans against gold jewellery stood at ₹1,01,934 crore as of January 26 and gold prices have touched a high of ₹65,140 per 10 grams on March 5. The finance ministry stated that it had noticed instances of non-compliance regarding the gold loan portfolio and had hence issued the directive.
Concerns have been raised «regarding the disbursement of gold loans without requisite gold collateral, anomalies observed in collection of fees and of interest applied to the gold-loan accounts and closure of the account either on the same day or within a few days of disbursement, at times by repayment in cash,» the finance ministry said in the letter, which ET has reviewed.
Letter sent before RBI directive to IIFL Fin
The communication was sent before the Reserve Bank of India (RBI) banned IIFL Finance from giving any new gold
