Advances against security of Sovereign Gold Bonds (SGB)

The Sovereign Gold Bonds (SGB) are government securities issued under section 3 (iii) of the government securities Act.  The holder of an SGB can borrow against the security of SGB or offer it as collateral security for any loan.  Banks can create a pledge, hypothecation or lien against the security (in accordance with the provisions of section 28 of G-Sec Act 2006/ chapter VII of G.Sec Regulations, 2007) without any restriction. Earlier,    Banks and other eligible holders could not acquire more than 500 grams of SGBs in a fiscal year, through transfers, etc., including transfers arising out of recovery proceedings.  Now the above restriction of 500 grams of SGBs in a fiscal year is removed, banks are free to lend against the security of SGB without any restriction on the weight of gold. Reserve Bank in its circular dated October 31, 2019, clarified to banks and non-bank entities that the Certificate of Holding (COH) held by a Sovereign Gold bondholder is a valid proof of its title and explained the procedure for marking a lien on the said bond. The Loan to Value ratio as applicable to any ordinary gold loan mandated by the Reserve Bank of India shall also apply to the bonds

Procedure for marking lien:

SGB bonds are issued in the form of the Government of India Stock. These bonds can be held either as Bond Ledger Account (BLA) in RBI’s E-Kuber system or as a dematerialized bond with the Depository. The title of the investors can be verified from COH if the bonds are held in the BLA account with RBI. In case the bonds are held in dematerialized forms, the title of a holder could be verified from the Demat statements provided by Depositories. Banks are given access to the E-Kuber portal and lien marking rights to the banks in case of bonds held in the BLA (Bond Ledger Account) form. In order to create a valid lien, the lien marking should be recorded by the banks extending the loan by the facility provided on the E-Kuber portal. The E-Kuber system has a ‘Reports’ option in SGB services. Banks have to first select ‘Lien Marking/Revoking details’ option in the portal and select the ‘Lien marking’ option to mark the lien on SGB held as security. In the case of dematerialized bonds, the lien is marked by the depositories in line with the practice followed for stocks and shares which are accepted as collateral by the banks.

Revocation of lien:

RBI’s E-Kuber system has a ‘Reports’ option in SGB services. Member Banks can access lien related reports for their respective Lien marking/revocation only. Lien revocation will be allowed to banks for the liens marked by them. They have to first select ‘Lien Marking/Revoking details’ option and select the ‘Lien Revoke’ option to revoke the lien.  However, Lien revocation will not be allowed for the investor if there is an already existing lien marking request pending for authorization in the portal. Further, Lien revocation has to be done in full, partial revocation will not be allowed. In the case of dematerialized bonds, the lien may be revoked in line with the practice followed for other stocks and shares which are accepted as collateral by the banks.

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