Reserve Bank of India identifies issues in gold loan practices

The Reserve Bank of India (RBI) has also raised concerns over irregularities in the gold loan sector. The central bank highlighted that the weak monitoring of loan-to-value ratios, incorrect risk assessments, and lack of transparency in gold auctions led to such large-scale defaults. Lenders have been urged to strengthen their processes and improve financial literacy among borrowers.

Interestingly, despite the challenges, the gold loan sector has grown steadily. Between FY20 and FY24, organised gold loans expanded at a compounded annual growth rate (CAGR) of 25 per cent. Banks led this growth, with a 26 per cent CAGR, driven by agriculture loans secured by gold jewellery.