The Reserve Bank of India (RBI) has cautioned banks about gold loan disbursals being made through fintech startups, according to people familiar with the matter. The central bank has flagged “concerns with the evaluation process” by these banks and fintechs, especially in cases where the gold is sourced through field agents of companies, one of the persons said. “The regulator has verbally expressed its concerns to a set of banks regarding this and asked them to take corrective actions immediately,” said another person.
Rupeek, IndiaGold and Oro Money are a few of the major players that source gold loans for banks.
Cautioned banks are in conversations with fintech firms for fixing these issues and could explore pausing business temporarily to ensure complete compliance, the people said.
‘Possible Overvaluation’
Sumit Maniyar, cofounder of Rupeek, which is backed by Peak XV Partners and Accel, said he has not received any communication from his company’s banking partners on this.
“RBI has been closely scrutinising the gold loan business after the IIFL Finance issue,” said one of the persons. “While banks may not have stopped disbursals through fintechs immediately, they are evaluating next steps closely.”
Emailed queries to RBI went unanswered.
The Machinery
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.
“The doorstep gold loan business has been going on for quite some time now and public sector banks also run it, so there should not be an issue with assaying standards followed by fintechs,” said the first person quoted earlier.
The central bank’s warning to lenders comes close on the heels of recent regulatory action over IIFL Finance’s gold loan business. RBI on March 4 said there had been supervisory lapses by the non-banking finance company and stopped the business till completion of a special audit and rectification.
The Players
Rupeek is the largest gold loan sourcing fintech platform in the country. According to a February 22 credit rating note by Crisil, total assets under management at Rupeek as of December last year stood at Rs 1,659 crore, compared with Rs 1,669 crore in March 2023. Asset quality had improved though. The note said loans that were due for more than 90 days totalled 2.3% in December, compared with 4.1% nine months earlier.
Rupeek works with Federal Bank, Indian Bank and South Indian Bank in this area.
Indiagold has partnered with Shivalik Small Finance Bank, HDFC Bank and Axis Bank for the business.
“This sector has grown exponentially over the last few years, which has drawn the attention of the regulator, since banks are the ultimate lenders,” said one of those cited earlier.
Federal Bank sanctioned Rs 25,085 crore of retail gold loans in the March quarter, up 17% from Rs 21,425 crore a year earlier. Among all other retail loan products, gold is the largest category for the Kerala-based lender.
Axis Bank has also seen a strong uptick in gold loans. According to its data, total gold loan disbursals grew at a compounded monthly growth rate of 94% in the second half of FY24.
As an asset class, gold has outshone almost every other commodity in recent times. The yellow metal has zoomed to about Rs 75,000 per 10 gm from Rs 60,000 a year ago. Data from RBI showed that retail gold loans grew 15% to Rs 1 lakh crore in March 2024, compared to Rs 89,382 crore in the same period last year.
