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RBI cautions banks on gold loan disbursals via fintechs

The Reserve Bank of India (RBI) has cautioned banks on gold loan disbursals being made through fintech startups. The central bank has expressed concerns about the evaluation process made by these banks and fintechs, especially in the case of where the gold is sourced from.

The regulator has verbally expressed its concerns to a set of banks regarding this and asked them to take corrective actions immediately.Cautioned banks are in talks with the fintech startups to address the issues pointed out by RBI. This is likely to put a temporary halt to the business to ensure complete compliance.

Central to the gold loan business is valuing the asset and disbursing credit against it. According to RBI norms, gold loan disbursals are capped at 75% of the value of the asset.

A senior industry executive said the infirmities relate to the heavy involvement of field staff and possible overvaluation of the gold. “For fintechs, there is a first level of check that takes place at the doorstep of the customer,” the executive said. “Subsequently, another round at the bank branch… The regulator may have found discrepancies between the two during their audits.”

In some cases, fintechs also offer personal loans on top of the gold loan to meet the customer’s credit demands. This may have been a red flag for the central bank.

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