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Gold loans have long been a popular financing option in India, especially among households seeking quick funds without selling their gold assets. However, complications can arise when a borrower passes away before the loan is fully repaid, raising questions about how the outstanding dues should be handled and who is responsible.
To address this sensitive issue, an expert committee was formed to suggest improvements to the process of repayment of gold loans. Among its key recommendations was the appointment of a nominee at the time of loan sanction. This step could simplify settlement procedures and protect both lenders and family members from unnecessary distress.
The committee also advised lenders to notify the borrower’s family about outstanding dues before auctioning the gold and to maintain proper records of such communications. These measures aim to prevent misuse, protect borrower rights, and bring greater transparency to the process.
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.
This ensures borrowers have a fair chance to retain their gold, while lenders can recover dues within clearly defined boundaries.
This approach would create a fair and secure framework for both parties and ensure a smooth repayment of gold loan 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 unauthorised measures.
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 finalise 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.
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.
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.
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.
In response to COVID-19, the RBI had temporarily increased the Loan-to-Value (LTV) ratio from 75% to 90% for non-agricultural gold loans. This policy, however, expired in March 2021. Some lenders may still offer higher LTVs under internal policies.
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 another positive step to foster sectoral growth and improve borrowing opportunities for Indian citizens.
Understanding these gold loan guidelines can help borrowers make informed financial decisions, especially with the revised LTV ratios offering higher loan amounts against gold.
You can apply for a gold loan through platforms like Bajaj Markets and benefit from a transparent and straightforward repayment process. With interest rates starting at 8.88% p.a., flexible gold loan interest payment options, and repayment tenures up to 3 years, you can get affordable financial solutions.
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.
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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