The Reserve Bank of India (RBI) on Tuesday allowed non-banking finance companies (NBFCs) engaged in lending against gold to auction gold jewellery pooled from multiple branches in a single district. Earlier, NBFCs were allowed to conduct the auction in the same town or taluka in which the branch that had extended the loan was located. The relaxation in auction rules will be subjected to the condition that the first auction has failed. Further, the NBFC will be required to ensure that all other requirements of the extant directions regarding an auction — those with respect to prior notice, reserve price, arms-length relationship, disclosures and the like — are met.
According to a 2016 notification from the central bank, at the time of the auction, the NBFC must declare a reserve price for the pledged ornaments.
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The reserve price should not be less than 85% of the previous 30-day average closing price of 22 carat gold as declared by the Bombay Bullion Association or the historical spot gold price data publicly circulated by a commodity exchange regulated by the Forward Markets Commission.
The value of the jewellery of lower purity in terms of carats shall be proportionately reduced. “It shall be mandatory on the part of the NBFCs to provide full details of the value fetched in the auction and the outstanding dues adjusted, and any amount over and above the loan outstanding shall be payable to the borrower,” states the 2016 notification.
Source: Financial Express
