In a recent development, banks have instructed their branches to ensure that gold loans availed of by customers are repaid and closed, and not renewed or upgraded. This move comes as a response to the practice of evergreening, where borrowers seek to upgrade their existing loans to take advantage of the increase in the price of gold.
Offering loans against gold has become popular in recent years due to the ease of process, lesser documentation, rapid availability of funding, and a variety of repayment options. However, the RBI rules do not allow for evergreening, and post-audit inspections of banks have emphasized the need to follow the rules.
According to R.S. Dhuriyan, an advocate at Indian Bank, banks have been orally instructed not to renew existing gold loans. This has come as a surprise to many customers who have been paying interest and seeking renewal of their gold loans.
Consumer activist T. Sadagopan stated that while it is understandable that the regulator wants to ensure that existing gold loans are repaid, banks should have been transparent in communicating this to customers. The move to stop renewing gold loans has sparked a debate among borrowers who rely on gold loans for their financial needs.
Overall, this development highlights the need for borrowers to be aware of the terms and conditions of their gold loans and to ensure timely repayment to avoid any potential issues in the future.
