February 11, 2025 –Union Finance Minister Nirmala Sitharaman, yesterday said that strict action would be taken against banks and other financial institutions if they do not comply with RBI regulations regarding the auctioning of pledged gold. She said that RBI guidelines require regular inspection, assessment and auditing of pledged gold. Methods such as acid testing and X-ray fluorescence should be used to check the purity of the gold and CCTV surveillance is necessary for security.

Banks and NBFCs typically auction pledged gold when the loan against it is not repaid by the due date. If a company believes the value of the pledged gold is continuously declining and the borrower is unwilling to repay the loan, the auction can be conducted earlier. In such cases, it is mandatory to give a notice to the borrower.

The amount raised through gold auctions in the July-September 2024 quarter increased threefold compared to the April-June quarter. Muthoot Finance had auctioned Rs 69 crore worth of pledged gold in the June 2024 quarter, and this figure rose to Rs 250 crore in September.

RBI Rules for Pledged Gold Auction:

• The auction will be held in the same city or taluka where the lending branch is located.
• It is necessary to inform the borrower about the auction date, time and location at least 15 days before the auction.
• A licensed auctioneer should oversee the auction

India has seen an unprecedented increase in gold loans. The gold loan portfolio of banks has grown 71.3% year-on-year, reaching Rs 1.72 lakh crore by December of the current financial year (FY).

Source: Media Reports