RBI issues additional guidelines for banks to give gold metal loans.

MUMBAI: The Reserve Bank of India has issued additional guidelines for banks giving gold metal loans or GMLs to jewellers as it has detected a few instances of fraud.

The central bank has asked the lenders to check the track record and credit worthiness of borrowers, collateral securities against the loan as well as the trade cycle of the manufacturing activity before sanctioning GMLs.

"Lack of proper monitoring mechanism and not ensuring end use of GML has resulted in certain instances of frauds/ misuse related to GML by certain unscrupulous jewellers," RBI said in a notification.

The central bank has clarified that such loans can be availed of only by those who manufacture gold jewellery themselves. "The jewellers cannot sell the gold borrowed under GML scheme to any other party for manufacture of jewellery," RBI said.

In order to mitigate the risk of such frauds or misuse of the scheme, the stand-by Letter of Credit (LC) or Bank Guarantee (BG) issuing bank and the GML providing banks should keep some additional guidelines in view, RBI said, warning GML providing banks for not carrying out detailed credit appraisal.

Banks have been directed to carry out proper quality check of the gold stock and verify the insurance cover. This can be pursued jointly by or on rotation basis by the GML providing bank and the stand-by LC/BG issuing bank.

RBI has asked the banks to fix the credit limit after carrying out a detailed credit appraisal and due diligence while banks disbursing GML should open current account of the borrowers with the consent of issuing banks. This will facilitate repayments as borrowers can arrange funds on the account for monthly servicing interest and principal amount.

"Banks may adopt a suitable board approved policy in this regard, keeping in view the above guidelines and the regulations issued by the Foreign Exchange Department, of the RBI related to import of gold," the central bank said.

Source : economictimes.indiatimes.com