Banks should issue gold metal loans only to jewellery manufacturers: RBI
Updated: Apr 03, 2014 01:50:14pm
Mumbai, Apr 3 (KNN) In the backdrop of a few instances of fraud, the Reserve Bank of India (RBI) has clarified that banks should issue gold metal loans (GMLs) only to jewellers “who are themselves manufacturers of gold jewellery.”
The Reserve Bank of India has issued additional guidelines for banks giving GMLs to jewellers.
"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 jewellers also cannot sell the gold borrowed under the GML scheme to any other party for manufacturing jewellery.
“It has come to our notice that some GML providing banks are extending Gold Metal Loans mainly relying on stand-by LC/BG issued by other banks, without carrying out detailed credit appraisal. If the sales proceeds are not routed through GML providing banks, they are not able to monitor end use of the gold lent,” said RBI.
Further, banks issuing stand-by LC/BG often do not carry out proper credit appraisal of the borrowers. 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.
“In order to mitigate the risk of frauds/misuse of the scheme by the GML borrowers, it is advised that the stand-by LC/BG issuing bank and the GML providing banks should keep additional guidelines in view, it said.
Banks issuing letter of credit or bank guarantees “should carry out rigorous credit appraisal exercise and treat stand-by letter of credit/bank guarantee or non-fund based limit on par with the fund based limit,” RBI said.
“Similarly, bank disbursing GML should carry out independent credit appraisal of the borrower. It should not rely solely on stand-by letter of credit or bank guarantees issued by other banks.”
Banks have to take into account the track record and credit worthiness of the borrower, trade cycle of the manufacturing activity and collateral offered by the borrower, before granting the loan.
“The manufacturer of the gold jewellery availing GML, irrespective of whether through stand-by LC/BG issued by another bank or directly from a nominated bank, should have good credentials and standing in the market. This should be established by inputs from the market as well as from other sources including from the credit information companies,” RBI said. (KNN/SD)
The Reserve Bank of India has issued additional guidelines for banks giving GMLs to jewellers.
"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 jewellers also cannot sell the gold borrowed under the GML scheme to any other party for manufacturing jewellery.
“It has come to our notice that some GML providing banks are extending Gold Metal Loans mainly relying on stand-by LC/BG issued by other banks, without carrying out detailed credit appraisal. If the sales proceeds are not routed through GML providing banks, they are not able to monitor end use of the gold lent,” said RBI.
Further, banks issuing stand-by LC/BG often do not carry out proper credit appraisal of the borrowers. 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.
“In order to mitigate the risk of frauds/misuse of the scheme by the GML borrowers, it is advised that the stand-by LC/BG issuing bank and the GML providing banks should keep additional guidelines in view, it said.
Banks issuing letter of credit or bank guarantees “should carry out rigorous credit appraisal exercise and treat stand-by letter of credit/bank guarantee or non-fund based limit on par with the fund based limit,” RBI said.
“Similarly, bank disbursing GML should carry out independent credit appraisal of the borrower. It should not rely solely on stand-by letter of credit or bank guarantees issued by other banks.”
Banks have to take into account the track record and credit worthiness of the borrower, trade cycle of the manufacturing activity and collateral offered by the borrower, before granting the loan.
“The manufacturer of the gold jewellery availing GML, irrespective of whether through stand-by LC/BG issued by another bank or directly from a nominated bank, should have good credentials and standing in the market. This should be established by inputs from the market as well as from other sources including from the credit information companies,” RBI said. (KNN/SD)
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