In order to strengthen bank’s credit appraisal process in the wake of frauds committed by certain unscrupulous jewellers, the Reserve Bank of India (RBI) has issued additional guidelines for banks offering gold metal loans (GML) to jewellers.
The central bank has suggested lenders to check the track record and credit worthiness of borrowers, collateral securities against the loan and the trade cycle of the manufacturing activity before sanctioning GMLs. Further, the banking regulator has clarified that such loans can be availed of only by those who manufacture gold jewellery themselves and also advised banks disbursing GML to carry out independent credit appraisal of the borrower and not rely solely on stand-by letter of credit/bank guarantee (LC/BG) issued by other banks.
The RBI’s notification highlighted that the jewellers cannot sell the gold borrowed under GML scheme to any other party for manufacture of jewellery. Warning banks for not carrying out detailed credit appraisal, the RBI directed banks to carry out proper quality check of the gold stock and verify the insurance cover which can be pursued jointly by or on rotation basis by the GML providing bank and the stand-by LC/BG issuing bank.
Banks have been directed to fix the credit limit for new borrowers after carrying out a detailed credit appraisal and due diligence. In case of existing customers, gold metal loans under the scheme may be carved out within the credit limit sanctioned by the bank. Further, banks disbursing GML should open current account of the borrowers which will facilitate repayment process.