Public sector banks asked to reassess gold loan process amid debt risk concerns

New Delhi: The Ministry of Finance has written to public sector banks to reassess their gold loan procedures amid concerns over risky debt as gold prices surge, according to a senior government official.

This comes against the backdrop of a rise in gold loans year-on-year basis. Gold loans surged by 17 per cent mirroring the 16.6 per cent increase in gold prices and loans against gold jewellery reached Rs 1.01 lakh crore as of January 26.

The Department of Financial Services (DFS), a division of the Finance Ministry has instructed all state-run banks last month to scrutinize their gold loan accounts granted after January 1, 2022.

Speaking to ANI on Tuesday, Vivek Joshi, Secretary, Department of Financial Services said, "We have written to banks to scrutinise every gold loan account."

As gold prices continue their upward trajectory, the valuation of gold assets tied to loans is undergoing a significant recalibration.

All India Gem and Jewellery Domestic Council (GJC) anticipate that gold prices likely reach a historic peak of Rs 70,000 per 10 grams in the coming year amid ongoing global economic uncertainties and geopolitical tensions will drive.

On March 4, the Reserve Bank of India barred IIFL FInance from offering, securitising or assigning any gold loans.

RBI said in its recent audit it found gold loan-to-value ratio deviation in 67 per cent of the gold loan account at IIFL Finance.

Explaining the action, the central bank said an inspection of the company was carried out by the RBI with reference to its financial position as of March 31, 2023, which raised concerns about the oversight of the company's gold loan portfolio.