Gold loans and fraud

Gold loans and fraud

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Created By Admin Last Updated Wed, 25-Nov-2020

One of the easiest forms of the clean loan was considered to be a gold loan but now the rise in fraud cases regarding the gold loan are seen, the various reasons for fraud in these loans can be:

·         Pledging of fake gold.

·         Mortgage of stolen gold without its clear title.

·         Mortgage of the low quality of gold (<18 K gold).

According to the study, the number of fraud used to be 1 in 30,000 customers earlier had now come to 1 in 10,000 customers that clearly show the chart of increasing rate in the gold loan cases in India.

The banker, the official registered valuer by the bank and the customer is the three parties involved in each gold loan transaction. Now the scenario can be that whether all these 3 parties can swindle the bank if the checking and controls or there is the absence of internal audit. The other possibility can be of the registered valuer teaming up with the customer and can commit fraud.

Frauds in gold loans- Here we are explaining the cases how gold loans fraud takes place:

·         Case-1: the gold which is kept in the bank that is certified by the registered valuer can be a fake and the bank realizes this later on and initiates the legal proceedings accordingly.

·         Case-2:  this can happen sometimes that all the three parties swindle the bank and later when the routine transfer of officials is made this problem can light up. There is no physical gold security and the bank now has no remedy to solve this case except to and it over to the police and files an FIR.

·         Case-3:  a fake registered valuer may routinely pass the valuation of fake gold as a genuine one, in that case, they themselves arrange the customers for the loan directly for a small commission with their partners in the exchange for pan card or AADHAR card details to create a fake customer ID. In India, these cases are more common where silver items are coated with gold and passes as gold.

Reasons for promotion of gold loans- The Loan-To-Value (LTV) stands at 90% and there is no need for a CIBIL score to get the loans by gold. The gold rates are going consistently up and the margin ratio also comes down sharply so the banks have to give it for lesser margin from the customers. The RBI has increased the permissible LTV on gold loans for non-agricultural purposes, that allow the households to take higher loans against their gold that is a positive move for banks and NBFCs that deal in gold loans. The farmers can take the gold loans under a lesser rate in priority sector lending by the RBI for prompt customers up to 3%. This will helps the needed farmers is beneficial for them.

Conclusion- Due to the acceptance of gold as a security and its liquidity issues gold loans will continue to exist in India. For reducing the frauds related to it the bank should be conscious of it and should have to change their staff on a regular basis so these frauds can be light up and the rate of gold loan fraud then could decrease.