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Banks seeks to end ‘evergreening’ of gold loans

  • Posted on June 13, 2024
  • News

Banks have been instructed to ensure gold loans are fully repaid at maturity, ending the practice of evergreening by issuing new loans to prevent existing ones from turning delinquent.


Large banking sectors have directed their branch networks to ensure that all gold loans availed by the customers are paid in full at the end of the loan period and the habit of renewal/up gradation of such gold loans has been ceased.

The Reserve Bank of India has commented on the problem of ‘evergreening’ of gold loans, through which new loans are made to borrowers not to let existing gold loan accounts become nonperforming. This is usually achieved by increasing the amount of loan that is given to the borrower if the price of gold goes up, where the borrower can make the additional amount by paying the difference in interest.

Evergreening had been another practice, where fresh loans are extended so that an existing loan is not likely to turn bad When the gold prices rise, the people who have not paid interest properly approach the bank for an upgrade and open a new loan account, stated R. S. Dhuriyan, an advocate for Indian Bank.

For instance, if a borrower pledged ₹1 lakh worth of gold to secure a loan and there was a subsequent appreciation of the prices to ₹1. 5 lakh, the customer could try to persuade his or her company to switch to a ₹1. 5 lakh loan to pay only the extra interest on it with ease.

However, RBI guidelines do not allow evergreening of this nature. Following recent audits, the regulator has required banks to implement the rules and manage the existing gold loans, including exiting from them after the term.

A gold loan borrower, who recently went to pay interest, was told by a bank official that he cannot renew the loan after the tenure expiry Many customers have paid only interest and rolled over the loan, Subha, a borrower from Pattabiram.

From the bank officials, it was established that they had been given oral directives to cease extending credit to customers with matured gold loans under the guise of evergreening the loans in order to enhance prudent lending practices.

Also Read: Uttarakhand Money Laundering Probe: ED Confiscates Cash, Gold in Raids Targeting Former Minister Rawat

Although consumer activists acknowledge the rationale behind the RBI guidelines, they claim that the banks should have informed the customers earlier about the timely repayment of gold loans.

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