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An expert committee tasked to revamp gold loan financing formed a set of proposals to refine the repayment process if a borrower passes away. 

The panel made the crucial suggestion that borrowers appoint a nominee when taking a gold loan. This would simplify matters for the borrower's family in case of unforeseen events. The concept of having a nominee for a gold loan will streamline debt settlement and offer a higher level of assurance to borrowers and beneficiaries alike. 

They further suggested that loan companies inform the family about the remaining debt before selling the gold and keep records of these communications. This will prevent unauthorised actions on the part of lenders, such as unlawful seizing of gold or negligence in informing families about outstanding debts. 

The central bank is actively seeking feedback from gold loan companies for further refinements before implementation.

Also read: De-bunking Common Gold Loan Myths

Who Would Benefit From These Proposals

If the central bank decides to implement these expert suggestions, such rules will help to protect both borrowers and companies in the following ways – 

  • Having a nominee will expedite the resolution of outstanding debts and offer the nominees time to prepare for the repayment. 

  • They will ensure that borrowers get a chance to retain their gold rightfully, while financial institutions exercise their rights to recover the money within defined parameters. 

  • This approach would create a fair and secure framework for both parties and ensure a smooth repayment and recovery process in the unfortunate event of a borrower's demise. 

  • Indian citizens who have taken a gold loan will no longer risk losing their valuable gold unfairly. 

  • These regulations provide clarity for loan companies, outlining permissible actions and preventing any unauthorized measures. 

Who Proposed These New Guidelines

In May 2022, the RBI set up a committee, led by former deputy Governor B. P. Kanungo, to examine customer services, with an emphasis on customer protection. On 5th June 2023, this committee proposed recommendations to enhance customer service standards, including guidelines for gold loan companies.  

The RBI's proactive approach involves consulting with gold loan companies to refine and finalize guidelines, fostering a collaborative effort to enhance customer service standards in the gold loan sector. The committee's comprehensive review of customer services in regulated entities demonstrates the RBI's commitment to improving transparency and fairness in the financial sector.

Additional Guidelines Proposed by the Committee

1. Notice Period before Auctioning Gold: 

The committee also stressed the importance of incorporating a notice period in the fair practices code and loan agreements of gold loan companies. This would ensure borrowers are informed beforehand about the circumstances leading to the gold auction so that they have time to address outstanding debts before the auction. 

2. Refund Procedure from Gold Auctions: 

The committee further proposed specific timelines for gold auctioning in gold loan agreements, limiting the period to one month. During this time, any surplus funds resulting from the auction must be promptly refunded to the customers. In case of delays, the company is obliged to pay interest as per RBI guidelines. The surplus amount obtained from the auction must be directly credited to the borrower's account. 

3. Communicating Terms in Local Languages: 

Given that many gold loan accounts belong to middle and low-income households, the committee recommends communicating terms and conditions in local languages for better understanding. Verbal communication, if any, should be preserved carefully. These measures would ensure fairness in lending practices and protect the interests of borrowers, especially those from diverse linguistic backgrounds. 

Read More

RBI's Updated Guidelines on Loan-to-Value Ratio

In 2022, RBI introduced relaxed norms for gold loans by increasing the Loan-to-Value (LTV) ratio from 75% to 90%. Now, banks and NBFCs can offer loans up to 90% of the value of gold or gold jewellery used as collateral. The funds, however, must be directed towards non-agricultural purposes. 

This move has been well-received by financial institutions and borrowers alike, providing the latter with the benefit of obtaining a higher loan amount against the same quantity of gold. The amended LTV ratio is seen as another positive step stride to foster sectoral growth and enhance borrowing opportunities for Indian citizens. 

Understanding these guidelines and revisions related to gold loan borrowing can help Indians refine their financial decisions and transactions accordingly. Moreover, the RBI's updates on Loan-to-Value (LTV) ratios can help borrowers access higher loan amounts against their gold collateral. So why wait? Utilise your gold to apply for a gold loan on Bajaj Markets and benefit from a transparent and easy repayment process! From interest rates starting at just 8.88% p.a. and repayment tenures up to 3 years, this is your chance to capitalise on affordable financial solutions! 


What will happen if the borrower dies before completely repaying the gold loan?

In such cases, banks and financial institutions usually reach out to the heirs and family members, asking them to pay the dues of the loan. However, if the loan is insured, the insurer repays the remaining amount. This is subject to the insurance company’s terms and conditions. If the heir fails to repay the amount and the loan is not insured, the gold held by the lender as collateral may be put up for auction to recover the unpaid loan amount. 

What are the RBI guidelines in case of the death of a gold loan borrower?

As per RBI guidelines, issued in May 2022, in the event of a gold loan borrower's death, loan companies should inform the family about any remaining debt. They must seek a solution before selling the gold, and maintain a record of this communication. The borrower is also advised to appoint a nominee, simplifying matters for the family in case of unforeseen circumstances.

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