consumers beware!
Worth its weight in gold
Get your gold jewellery valued by a certified valuer and carefully read the RBI guidelines before going in for a gold loan
Pushpa Girimaji 

I want to take a loan on gold jewellery from a non-banking financial company. Are there any precautions to be taken while doing so, to protect my interests?

Before approaching a lender, get the jewellery weighed and valued by a certified valuer. This will ensure that you are not misled when you approach a non-banking financial company (NBFC ) or even a bank, for that matter. Choose an NBFC with a good track record.

Always get in writing all terms and conditions governing the loan agreement, including the rate of interest. Compare it with offers from other NBFCs or banks and take an informed decision. Start the borrowing process only after understanding the terms and conditions. At the time of borrowing, insist on a certified valuer assessing your jewellery and issuing a valuation certification, giving the description of the jewellery, its purity and weight. Insist on your getting a copy of all documents signed by you and keep them carefully.

Are there any RBI guidelines on 'gold loans' for a consumer taking a loan?

I would suggest that you go through the 'master circular on fair practices code' for NBGCs released by the Reserve Bank of India on July 2, 2012. You can access it on the RBI website, under the head 'notifications' issued on July 2.

The Master Circular, which is a compilation of all instructions issued by the regulator (RBI) to non-banking financial companies till June 30, 2012, tells you what your entitlements are vis-`E0-vis the loan agreement . For example, it tells you that the NBFC has to give you all information regarding the loan in writing and in your local language or in a language understood by you. And this information should not only include the terms and conditions governing the loan, but also the penal interest, if any, charged on late repayments, in bold letters, says the RBI.

The regulator also mandates that all NBFCs should work out the rate of interest in a transparent manner and explain to the borrower, the rationale for fixing the interest rate and its calculation. This should also be put up on the website of the NBFC and updated regularly. If not, it should be published in newspapers, the RBI says. The regulator also says that in case of default by the borrower, if the gold has to be auctioned, it should be done only after adequate prior notice to the borrower and in a transparent manner. The gold has to be auctioned only by auctioneers approved by the Board.

It is equally important to look at the RBI guidelines issued to NBFCs on September 16, 2013, on a number of important issues, including secure storage of pledged jewellery, accurate valuation of jewellery and further norms for auctioning the pledged gold.

Titled "Lending against security of single product-gold jewellery", the guidelines say that "Currently there is no standard method for arriving at the value of gold accepted as collateral and valuation is arbitrary and opaque. In order to standardise the valuation and make it more transparent to the borrower, it has been decided that gold jewellery accepted as collateral will have to be valued at the average of the closing price of 22-carat gold for the preceding 30 days as quoted by The Bombay Bullion Association Ltd. (BBA). While accepting the gold as collateral, the NBFC should give in writing to the borrower, on their letter head giving the purity (in terms of carats) and weight of the gold. If the gold is of purity less than 22 carats, the NBFC should translate the collateral into 22 carat and state the exact grams of the collateral. Jewellery of lower purity of gold shall be valued proportionately." The regulator here gives additional instructions on auctioning of gold. "The auction should be conducted in the same town or taluka in which the branch extending the loan is located. And while doing so, the NBFC should declare a reserve price for the pledged ornaments. This reserve price "should not be less than 85 per cent of the previous 30 day average closing price of 22 carat gold as declared by the BBA and the value of the jewellery of lower purity in terms of carats should be proportionately reduced. It will be mandatory on the part of the NBFCs to provide full details of the value fetched in the auction and the outstanding dues adjusted and any amount over and above the loan outstanding should be payable to the borrower" says the RBI.

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