RBI To Issue Comprehensive Norms On Gold Loans — 6 Key Measures Announced

The Reserve Bank of India has announced six key measures as part of its monetary policy — the first for this financial year — including issuing comprehensive guidelines on gold loans that it will release on Wednesday, Governor Sanjay Malhotra said.

In order to harmonise guidelines on gold loans across entities to the extent possible, keeping in view their risk differential capabilities, the central bank will issue comprehensive regulations on prudential norms as well as conduct related aspects for such loans, Malhotra said.

This has come as the RBI on Sept 30, 2024, had issued a circular, advising lenders to review their policies, processes and practices in granting loans against pledge of gold ornaments.

In the circular, the regulator had said that in its recent supervisory checks, it had noted operational gaps at these lenders. These included inadequate due diligence of borrowers and lack of end use monitoring, weak monitoring of loan to value ratio and incorrect application of risk weights.

"All SEs (supervised entities) are, therefore, advised to comprehensively review their policies, processes and practices on gold loans to identify gaps, including those highlighted in this advice, and initiate appropriate remedial measures in a timebound manner," RBI had said in its circular.

In February, loans extended by banks against gold jewellery rose 87% year-on-year to Rs 1.91 lakh crore. It is currently the fastest growing loan book among banks, according to RBI's monthly sectoral data.

The second announcement was on extending securitisation of stressed assets through market based mechanism.

"There is already a mechanism of securitization of standard assets. The same is now proposed to extend with modification to stressed assets," Malhotra said.

The third announcement was pertaining to extending the co-lending guidelines to all regulated entities and loans. So far, co-lending arrangements are between banks and non-banking financial companies and are restricted to priority sector loans.

To exploit the huge potential of such arrangements, the RBI has proposed to extend these to all regulated entities and to all loans, be it priority sector or outside priority, he said.

To harmonise the regulations governing non-fund based facilities across regulated entities, the central bank said that it proposes to issue comprehensive guidelines.

Malhotra said that instructions related to partial credit enhancement by regulated entities are also proposed to be revised. This is expected to broaden funding sources for infrastructure financing, he said.

The fifth announcement was related to enhancing Unified Payments Interface limits. At present, the transaction amount for UPI, covering both person to person and person to merchant payments is capped at Rs 1 lakh except for specific use cases of P2M payments which have higher limits, some at Rs 2 lakh and others at Rs 5 lakh.

The RBI said that National Payments Corporation of India in consultation with banks and other stakeholders of the UPI ecosystem, may revise such limits based on evolving user needs. However, banks can continue to have the discretion to decide their own internal limits, he said.

Lastly, the RBI decided that the fifth 'Theme Neutral' cohort of the regulatory sandbox will be made into an 'on tap' application facility.

This initiative is expected to foster continuous innovation and keep pace with the rapidly evolving fintech and regulatory landscape, Malhotra said.