Advances against pledge of Gold jewels/coins/ornaments

The scheduled commercial banks including public sector banks as well as co-operative banks are lending against the security of jewels. They accept them for pledge after satisfying the ownership of the jewel and prospective borrower is the account holder of the bank. The borrower shall give a declaration letter to the bank stating that the ornaments are his/her own property and he/she has the fullest right to pledge them. Banks insist on an adequate margin on the market value of the ornament to be pledged. The borrower shall promptly pay interest debited to the account so that the margin maintained is not diluted. The loans are generally given only for a period of 6 months or 1 year.
Appraisal and valuation of the ornament:
The ornaments to be pledged to the bank are valued by the bank’s approved jeweler or shroff as an appraiser for the valuation of the gold. Ideally, valuation and appraisal of the ornaments are done in the bank’s premises itself. If a valuation is to be done at the appraiser’s place bank needs to take suitable precautions against loss in transit. The bank should send the ornaments to the appraiser in a locked box, one key of which should be kept with the appraiser and the other with the bank. The box should be sent through a responsible member of the staff along with the prospective borrower. The placing of ornaments in the box at both ends should be done in the presence of the employee carrying the ornaments to the appraiser and the borrower. The bank should take a suitable insurance cover for the loss of the ornaments while in transit. The valuation certificate issued by the appraiser shall indicate the description of the ornaments, their finesse, and gross weight of the ornaments, net weight of the gold content exclusive of stones, lac, alloy, strings, fastenings and the value of the gold at the prevailing market price. The valuation report should be duly signed by the appraiser which should be kept along with the loan documents by the bank. Once the appraisal of the jewels is over and accepted by the bank for granting a loan, it should not be handed over to the borrower under any circumstance. If the borrower collects back the gold and taking it out of Bank Manger’s sight even for a few minutes for any reason, the same should not be accepted by the bank without re-appraisal/examination by the jewel appraiser. This is because there are many incidents of the prospective borrower fraudulently replaced the original gold jewel with imitated one after the valuation.
Custody of Ornaments:
The ornaments belonging to each loan account shall be kept separately in small cloth bags along with a tag indicating the description of ornaments, Gross weight, net weight, gold loan account number, name of the borrower, etc. tied to the bag to facilitate identification. These details are also appearing in the gold loan application as well as the gold loan register. The bags should be arranged in trays according to loan account numbers and kept in the strong room or fireproof safes under joint custody. The jewels pledged to the bank should be insured for the appraised value against the risk of burglary. If banks store the pledged jewels in fire-proof strong rooms, insuring them against fire may not be necessary. As per RBI guidance Banks may take blanket insurance policy covering cash, jewels, and other valuables and also covering all types of risks (Reference RBI RBI/2008/275 UBD. PCB.Cir.No. 24/ 13.05.001/ 08-09 November 10, 2008).
Release of pledged jewels:
On full repayment of the loan, the bank releases the pledged jewels to the borrower against acknowledgment in token of having received the ornaments. Sometime borrower may request for part-release of the ornaments pledged against part repayment of the loan. Some Banks have Board approved a policy to consider such a request of the borrower, provided the value of the left-over ornaments is sufficient to cover the outstanding balance with the margin prescribed in the account. Alternatively, the borrower may close the original loan and re-pledge the residual ornaments so as to enable the bank to release the part of the ornaments pledged. In certain circumstances, the borrower may not be able to personally visit and collect the ornaments in person. Banks in such cases obtain a letter of authority containing an undertaking by the borrower, absolving the bank of any responsibility in the event of dispute or loss arising from the delivery of the ornaments to the third party named there to release the ornaments. The receipt of the third party is obtained on the letter of authority as well as in the gold loan ledger/records.
Auction of ornaments in case of default:
If the borrower does not repay the loan on the due date, the bank shall issue a notice calling upon him to repay the loan within a specified time. If the borrower does not respond to the notice, a reminder should be sent by registered post informing the borrower that the ornaments would be auctioned. The bank would adjust the sale proceeds against the outstanding dues to the bank, the balance, if any, would be paid to the borrower against his receipt.

RBI guidelines on advance against minted gold coins, gold jewellery, and gold ornaments:

 As per RBI guidelines, Banks should not grant any advance against bullion/ Primary gold. However, in its mailbox clarification dated April 5, 2011   RBI clarified that there would be no objection to the bank granting loans against specially minted gold coins sold by them, as specially minted gold coins sold by banks may not be in the nature of “bullion” or “primary gold”. Nevertheless, banks should ensure that the weight of the coin(s) does not exceed 50 grams per customer and the amount of loan to any customer against gold ornaments, gold jewellery and gold coins* should be within the Board approved limit in terms of RBI circular DBOD.No.BC.138/21.01.023/94 dated November 22, 1994. Further, while granting advances against the gold coins, banks are required to ensure, without fail that the end use of the funds is for approved, non-speculative purposes. To know more Read: Advances against the security of sovereign-gold-bonds (SGB)

(* gold coins weighing up to 50 grams)

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