Accordingly, the RBI has said that NBFCs must put in in place a Board approved policy for lending against gold that should inter alia, cover the following:

a. Adequate steps to ensure that the KYC guidelines stipulated by RBI are complied with and to ensure that adequate due diligence is carried out on the customer before extending any loan,

b. Proper assaying procedure for the jewellery received,

Internal systems to satisfy ownership of the gold jewellery

The policy shall also cover putting in place adequate systems for storing the jewellery in safe custody, reviewing the systems on an on-going basis, training the concerned staff and periodic inspection by internal auditors to ensure that the procedures are strictly adhered to. As a policy, loans against the collateral of gold should not be extended by branches that do not have appropriate facility for storage of the jewellery,

The jewellery accepted as collateral should be appropriately insured,

f. The Board approved policy with regard to auction of jewellery in case of non-repayment shall be transparent and adequate prior notice to the borrower should be given before the auction date. It should also lay down the auction procedure that would be followed. There should be no conflict of interest and the auction process must ensure that there is arm’s length relationship in all transactions during the auction including with group companies and related entities,

g. The auction should be announced to the public by issue of advertisements in at least 2 newspapers, one in vernacular language and another in national daily newspaper.

h. As a policy the NBFCs themselves shall not participate in the auctions held,

Gold pledged will be auctioned only through auctioneers approved by the Board.

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