India’s gold loan market is expected to grow exponentially by 2022, reaching almost Rs. 4,600 billion with a CAGR of 13.4%. The highest growth was witnessed during FY 18-19 when several financial institutions created industry-firsts after exploring into new, yet prospective markets.
However, such rapid market increase resulted in a number of issues as well.
One of the primary issues was the process to tackle NPAs or Non-Performing Assets. As these credits are disbursed only against pledged gold jewellery, borrowers are liable to repay the total outstanding amount due within their repayment tenor, to release their gold pledged.
To allow financial institutions to recall a loan amount in case a customer fails to clear this debt, Association of Gold Loan Companies (India) introduced a provision to sell the pledged gold assets via a public auction once such loans become NPA.
Now, as a prospective borrower, you need to understand how this process works, what gold loan auction rules are, and what it means to you as a customer.
Let’s take a detailed look into it.
Gold Loan Auction Process
It was ensured that all companies followed a unified, transparent policy for the auction of pledged assets. It is the reason why an NPA is sold only via a public auction, after duly informing a concerned loanee of this situation.
- Regulations regarding the auction
Gold loan auction procedure mandates that this process be conducted through independent and professional auctioneers appointed by the organisation and duly approved by the Board. Moreover, the company itself should not participate in that particular auction to ensure zero conflict of interest.
- By policy, the auctioneer is liable to serve an auction notice to a loanee at least 21 days ahead of such proposed auction date. This notice should be sent by registered post.
- Advertisement of the auction (with its scheduled date, location, and time) has to be issued in a minimum of two leading local new papers. Auctioneers should also ensure that at least one newspaper should be printing in the borrower’s vernacular language, while another in any national daily.
As a loanee, you will get an opportunity to release your gold assets pledged by paying an entire due amount till the preceding working day of auction’s date. However, it has to be within business hours only.
- Gold loan auction rules mandate that company officials should be present during the public auction while these assets are being sold.
- Public auctions can only be held if a reasonable number of bidders participate in this process.
- Regulations regarding the price
Association of Gold Loan Companies (India) has enactedt specific guidelines regarding the price, quality of an ornament, and rates. Here is an overview.
- Any pledged ornament can be auctioned at a rate close to or equal to gold’s prevailing market price (of the particular day of auction) provided they meet all quality standards. For this purpose, Rupeek provides a reserve price for the auction for preserving customer interest.
- Any bid incurring at a substantially lower amount than a prevailing market rate will not be confirmed, unless the responsible authorities observea declining trend in a market for gold. Otherwise, this auction will conclude in favour of a highest bidder.
- As a loanee, you carry a right to participate in this bid. However, you will have to make an earnest deposit (fixed by the auctioneer) for each auction.
- Gold loan auction procedure dictates that complete records of this auction, along with details such as date, time, venue, details of sales made, rate, bid amount, highest bidder (in whose name this bid was confirmed) and other bidders has to be maintained and preserved. These details might get verified by auditors at a later date.
After this auction is concluded, the customer will be conveyed with details regarding this process. You will receive a registered letter containing details like the value fetched in this auction, outstanding dues fetched, and any balance fetched.
Any balance of this auction proceeds is utilised to settle mandatory taxes and auctioneers commissions. It is a mandate agreement to comply with the Sales Tax Laws of the state where the auction is conducted.
The rest of the balance will be refunded to you.
The rest of the balance will be credited to you by Rupeek Fintech Pvt. Ltd. This process requires no customer input; the remaining amount will be automatically sent to your account, as this is considered as surplus funds generated by the gold asset itself. This surplus fund can prove beneficial as it provides additional financial support.
Additional Gold Loan Auction Rules
There are certain regulations that a gold loan company has to follow. For example, any ornament which was pledged under certain special schemes, like policies with shorter pledge durations, will be listed for auction only after completion of the predetermined loan duration (provided the due was not repaid within that period).
Also, all Association of Gold Loan Companies (India) members have to use standardised loan documents that disclose details regarding the auction process.
The annual report of the financial institution should also carry certain details regarding the auction for future reference. These details include –
- Total number of auctions conducted during one financial year.
- Total number of loan accounts involved, along with the outstanding value.
- The cumulative sum fetched in auction.
- Balance amount recovered from borrowers.
- Total balance amount refunded.
- Details of the bid, the total value of jewellery, etc. if the company itself participated in the auction.
With this guide to gold loan auction procedure, you will be able to understand better the formalities and regulations involved in this process. The auction offers a transparent system to tackle NPAs while keeping the customer’s interest in mind. The provision to repay the balance amount, allowing customers to participate in auctions and offering the opportunity to repay the due for asset release before the date of the proposed auction, can prove significantly beneficial for both lender and borrower.