ETBFSI’s Post

Banks should review the loan given against Gold The Indian Ministry of Finance has asked all public sector banks to review the status of loans given against gold jewelry. This step was taken after the government came to the notice of non-compliance with rules in many cases. The Department of Financial Services (DFS) in a letter to heads of public sector banks has asked them to review their systems and processes related to gold loans. Financial Services Secretary Mr. Vivek Joshi said that we have asked banks to conduct a comprehensive review of the gold loan business. A clear directive was issued last month in this regard. It was advised to rectify the anomalies related to the collection of fees and interest and closure of gold loan accounts. Various concerns have been highlighted in the letter. These include disbursement of gold loans without the required gold guarantee, collection of fees, and discrepancies in payment in cash. DFS urged banks to thoroughly review the last two years from January 1, 2022, to January 31, 2024. Its objective is to ensure that all gold loans are given according to the regulatory requirements and internal policies of the banks. It is noteworthy that the price of gold has reached record levels. In the last month, the price of 10 grams of gold has increased from Rs 63,365 to Rs 67,605. State Bank of India (SBI) alone has given gold loan worth Rs 30,881 crore till December 2023. At the end of the third quarter, Punjab National Bank's gold loan stood at Rs 5,315 crore while Bank of Baroda's gold loan stood at Rs 3,682 crore.

The Gold Loan Segment: A Golden Opportunity or a Double-Edged Sword? The RBI’s recent move to ask gold loan companies to tighten portfolio monitoring is a timely reminder of the critical balance between opportunity and risk. Gold loans have long been a trusted credit avenue in India – they offer quick liquidity, are backed by a tangible asset, and have a relatively lower risk. However, this recent RBI directive highlights how rapidly growing portfolios can also bring challenges. 🔍 What's the Issue? The article in The Economic Times reveals that some gold loan companies have faced lapses in monitoring and maintaining portfolios effectively, leading to potential risks for both lenders and borrowers. 💡 My Perspective: While gold-backed loans are seen as safe due to their collateral, the very nature of gold as a high-value asset demands strict controls. The rising popularity of gold loans can make portfolio management complex. As the market grows, digital transformation, efficient risk management, and real-time monitoring are no longer options but necessities. 🔗 Check out the article for more insights: RBI urges gold loan firms to monitor portfolios following lapses : https://lnkd.in/ggewjRQN #GoldLoans #RBI #PortfolioManagement #BankingIndustry #FinTech

Better late than never! We all are being very emotional with Gold, Gold is an auspicious aspect of our life. It always gives us financial support as and when required. So the Gold Loan in India is very popular source to have quick funds primarily in rural areas. Gold loan is the safest asset class for lenders, so while lending against gold lenders must have take care of all the aspects in consideration including the emotional value. We all are seen in recent times, few companies have been giving away gold loans without following proper guidelines and procedures laid down by the RBI. Recently, one of these companies has been reprimanded by the RBI and they have been barred from sanctioning gold loans. While discussing about gold loan our team members raised this issue of sanctioning the loan against gold upto 100 % of gross weight by some companies, which is clear violation of guidelines issued by RBI. Audit / Rechecking of Gold is One of the important aspect of the Gold loans. All the lenders carried out the audit internally for loans sanction. Now the question arise, whether theses companies conduct the audits with complete transparency? And any discrepancy arises during audit are complied or not? The action taken by RBI shows how seriously the lenders are acting upon the findings of the auditors. It seems that the lenders was in a single-minded pursuit of achieving its targets and didn't bother violating the rules, laws and guidelines as prescribed by RBI. Unfortunately, there are many such companies who are still operating in a similar fashion. We can see the violations of rules from interest rates to mortgage procedures, as needy customer it does not go through the detailed terms and conditions laid by these companies on the loan documents, it results excess money extraction from the customer who always feel cheated. While the RBI has currently taken action only with regards to LTV, I sincerely hope that in the future, they will come up with strict guidelines and if found violation are result in strict actions towards gold loan providers for their inappropriate business practices, interest rates and the resulting impact on the society and people. #GoldLoans #LoanGuidelines #Auditing #Compliance

RBI's new draft rules for project finance loans - How intense can be the impact on banks & NBFCs if passed? In brief, though still in draft stage, the probability of provisioning% for project finance loans (i.e., loans for building infrastructure...roads, bridge, port, dams etc etc.)........going up from the current 0.4% to max. till 5%......can be a pretty huge load... Also with the objective of making India a developed nation by 2047 (budget for the same allocated as 11 lac Crores in the interim budget FY25)....infrastructural development will be a key driver.... And with the above rule if gets passed can pose as a challenge for the same.....as in a way or the other....either it will have an impact on the profitability of the banks/NBFCs or they will pass it on the borrowers (can get expensive by atleast 1-1.5%).. But we are also aware of the bad loan problem that had shaken the industry about a decade back....with 52% of the stressed loans being related to infrastructure..... So, yes, reasons are there for our central bank to be stringent....but will wait to see how it ultimately unfolds... https://bit.ly/3USjFV8

Loan disbursements to the Kingdom’s construction and real estate sectors by domestic banking institutions have risen significantly during the first semester of 2024 compared to previous periods with real estate loans up around 25 percent, and construction loans up 15 percent, compared to the first half of 2023. https://smpl.is/9fjqv

Stressed loans refer to Non-performing loans (NPLs) plus Rescheduled loans. The latter is particularly important in Bangladesh's context because loan classification standards have been fairly lax at times. This allowed banks to defer NPL recognition, thereby reducing reported NPL but not the underlying bad loans. Banks were also given windows to reschedule bad loans via partial down-payment and this meant various problem loans went into the rescheduled basket instead of the NPL one. A pattern is visible in the figure below: NPLs have been conspicuously stable while rescheduled loans have been on the rise. It is therefore insufficient to just look at reported NPLs when assessing the health of BD's financial sector-- we must look at the total stressed loans. Loan reporting is expected to be more stringent going forward, thanks in part to the IMF program. This is a step in the right direction as proper classification will also allow policymakers to more accurately determine the nature and size of the package needed to support the weaker banks and the sector as a whole. The task force formed by the interim government to oversee banking sector reforms is extremely capable and I am optimistic that they can find the right solutions. *Stressed Loans Ratio = (NPLs + Rescheduled loans)/Total loans*

#Business| 📉 NPA on Mudra loans falls to 3.4% in 2023-24, down from 4.77% in 2020-21, says Nirmala Sitharaman. 📊🔽 Tap to read more⤵️ https://lnkd.in/db3jMvdy  #MudraLoans #Finance #India #FM #NirmalaSitharaman

Non-Bank Financial Institutions (NBFIs) defaulted loans rose to a record 33.15% of all disbursed loans in the recently concluded FY2023-24 driven by pervasive loan irregularities and scams. According to the Bangladesh Bank (BB), the total amount of defaulted loans in NBFIs surged to Tk247.11 billion in June 2024, up from Tk199.51 billion in the same month of 2023. The total disbursed loan of the NBFIs was Tk745.33 billion at the end of June 2024. However, in March 2024, the Non-Performing Loans (NPLs) in the NBFIs amounted to Tk239.00 billion. Notably, the defaulted loans in People’s Leasing and Financial Services, Bangladesh Industrial Finance Company, Fareast Finance, International Leasing and Finance, and First Finance surpassed 90% of their total loan disbursements. According to a circular issued by the Bangladesh Bank, the SMART (Six Month Moving Average Rate of Treasury Bill) formula for the Non-Bank Financial Institutions (NBFIs) has been abolished to establish fully market-based interest rates. This decision comes after the SMART formula was removed from the banking system in May of this year. Additionally, the central bank has also set conditions for finance companies to publish interest rates on their websites, avoid exceeding market rates, specify fixed or floating rates in loan approval documents, permitting a 1% variation based on clients down from the previously charged 3.0% and penalty charge must be approved by the board has been lowered to 0.50% in addition to the regular rate compared to the current practice of 2.0%. Nevertheless, the authorities within the NBFI sector must address issues such as the higher rate of loan defaults, inadequate internal governance, shortcomings in risk management, and the lack of long-term liquidity sources to revitalize the sector.

📢 Finance Ministry asks PSU Banks to review gold loan portfolio The Department of Financial Services (DFS), which is part of the Finance Ministry, in a letter issued on February 27, asked all state-run banks to review every gold loan account issued after January 1, 2022. The DFS wants the banks to assess the collateral value of the gold loan accounts, analyse collection charges and check if there has been any evergreening. 💡 The Finance Minister in the letter noted that there were major concerns over the way the gold loans are disbursed without requisite gold collateral. It said that anomalies observed in collection of fees and of interest applied to the gold-loan accounts and closure of the account. 💡 Earlier this week, the Reserve Bank of India barred IIFL Finance Ltd to stop sanctioning or disbursing gold loans or assigning, securitising, or selling any of its gold loans. IIFL, however, can continue to service its existing gold loan portfolio through the usual collection and recovery processes, the RBI said in its order. 💡 The circular was issued on the back of a rise in gold loans on a year-on-year basis. There was a 17% rise in gold loans vis-a-vis 16.6% rally in the yellow metal's prices. Loans against gold jewellery stood at Rs 1.01 lakh crore as of January 26. In comparison, gold prices have touched Rs 66,880.00 per 10 grams on March 7. The Finance Ministry has clarified that it had noticed instances of non-compliance regarding the gold loan portfolio and had hence issued the directive. 🎯 Bottomline - Finance ministry wants state-run banks to review gold loan process amid rise in accounts

UCO Bank bad loans of Rs 414 crore improves through NCLT mechanism in Q2FY24 “Public Sector Lender UCO Bank has recovered Rs 414 crore from 26 accounts through the NCLT mechanism during the second quarter” Read more-👇 https://lnkd.in/gs6WJKbf #UCObank #NCLT #FinancialRecovery #PublicSectorBank #NewDelhi #BankingSector #FiscalPerformance #DebtResolution #EconomicGrowth #CorporateRecovery UCO Bank