RBI tightens norms for NBFC loans against gold jewellery

While prohibiting NBFCs from issuing misleading, the central bank asked them to value gold jewellery accepted as collateral at the average of closing price of 22-carat gold in past 30 days

Seeking to keep the demand for gold under check, the Reserve Bank of India (RBI) has tightened the norms for loans against gold jewellery.


In a notification, the RBI said, “In order to standardise the valuation and make it more transparent to the borrower, it has been decided that gold jewellery accepted as collateral will have to be valued at the average of the closing price of 22 carat gold for the preceding 30 days as quoted by the Bombay Bullion Association (BBA)."


Currently, there is no standard method for arriving at the value of gold accepted as collateral and the valuation is arbitrary and opaque.


While accepting the gold as collateral, RBI said non-banking financial companies (NBFCs) should give in writing to the borrower, on their letterhead giving the purity (in terms of carats) and weight of gold.


If the gold is of purity less than 22 carat, the NBFC should translate the collateral into 22 carat and state the exact grams of the collateral. In other words, jewellery of lower purity of gold shall be valued proportionately.


The loan to value ratio for loans against jewellery will be 60%.


The notification further said NBFCs financing against the collateral of gold must insist on a copy of the PAN card of the borrower for all transactions above Rs5 lakh. High value loans of Rs1 lakh and above must only be disbursed by cheque. It also directed gold loan companies to standardised documentation across all branches.


"It has been decided that where the gold jewellery pledged by a borrower at any one time or cumulatively on loan outstanding is more than 20 grams, NBFCs must keep record of the verification of the ownership of the jewellery. The method of establishing ownership should be laid down as a Board approved policy,” the notification said.


The central bank has also prohibited NBFCs from issuing misleading advertisements like claiming the availability of loans in a matter of two-three minutes.


Noting that unbridled growth may not be in the overall interests, RBI has also tightened the rules for opening branches by such NBFCs.


“NBFCs, which already have more than 1,000 branches, may approach RBI for prior approval for any further branch expansion,” it said.


Besides, it said that no new branches will be allowed to be opened without the facilities for storage of gold jewellery and minimum security facilities for the pledged gold jewellery.


With regard to auction, the notification said that it should be conducted in the same town or taluka in which the branch that has extended the loan is located.


While auctioning the gold, the NBFC should declare a reserve price for the pledged ornaments, it said, adding that this should not be less than 85% the previous 30-day average closing price of 22 carat gold as declared by BBA.


Marching Ahead
“We want that education by which character is formed, strength of mind is increased, the intellect is expanded,” said Swami Vivekananda. Aditi Roy writes about a youth organisation that works towards this 
What started as a library offering engineering and management books in 1991 has developed into an organisation devoted to services for the youth and the underprivileged. Located at Dombivli (a distant Mumbai suburb), the founding members of Vivekanand Seva Mandal started an academy to provide free educational assistance to engineering students. The Mandal gradually grew into its present-day avatar which undertakes a variety of social, educational and upliftment activities. 
In 1996, the faculty of renowned engineering colleges like Veermata Jeejabai Technical Institute (VJTI), Mumbai, decided to set up an academy to provide training to underprivileged youth. “Engineering has always been a good career option for students in our area. The concept of technology has been very well accepted by people here, so they are drawn towards it,” says Krunal Mhatre, a karyakarta (volunteer) associated with the Mandal since two years.
Professionals or students residing around Dombivli volunteer as teachers. They monitor the progress of each student and conduct motivation classes. One such programme runs in Maanpada village near Dombivli. Sankalp Patkar, an engineer doing his MBA from a reputed business school, is one such volunteer. He learnt about the Mandal during his second year at the engineering college. “We have a two-hour weekly class to teach students subjects like Maths, English and Science through audio-visual presentations.” 
Equipment is expensive so funding becomes an issue, but the alumni, who hold senior corporate positions, help raise funds. “We implement a holistic approach in assessing progress of the students through various activities that are part of the programme. Our main thrust is character building, becoming a better human being,” says Mr Patkar.
The library houses over 7,000 books and the Mandal has set up a study centre in Dombivli that can accommodate up to 100 students at a time. These facilities are managed and supervised by a team of student volunteers, who get hands-on training in management of new social projects launched by the Mandal.
These include the i2i project launched in 2011 to connect the students directly with industry. The project included placements for the fresh graduates, honing entrepreneurial initiatives and enhancing employability of the students. Project i2i got further impetus in 2012 with a Career Fest. Over 2,300 engineering students and 200 companies participated in the Fest and 100 jobs were on offer. An IT Centre and a Technology Development Centre are two other projects where volunteers work at streamlining processes or developing new techniques. 
ZEP (the Marathi word for achieving one’s full potential) is the name of the Mandal’s educational assistance fund for needy tribal students who lack resources to continue their studies. ZEP aims to provide high-quality education to the children in the area and is available to students from eighth standard to graduation level and for those pursuing courses in IT and nursing.
The Mandal’s social work is not restricted to Dombivli; it extends to the nearby villages of Vihigaon, Khogade and Wada taluka in Thane district. The self-help groups (SHGs) set up by the Mandal provide support for establishing marketing channels, arrange finances, guide in logistics and product development. The Mandal is actively involved in providing assistance for agriculture and watershed management. It runs medical camps in collaboration with local NGOs and doctors. Under its Project Tejas, homes in Khogade are provided solar lamps to replace kerosene lamps, thus saving money and the environment. Project Agricultural Development helps farmers grow cash crops to improve their incomes. A village committee has been formed that includes women to facilitate communication between farmers and volunteers of the Mandal. 
Donations to Vivekananda Seva Mandal are eligible for exemption under Section 80G of the Income-tax Act. 



Coal India’s seven new blocks on offer

With the seven new blocks, Coal India hopes to develop 15 open cast and 12 underground mines, with an annual production capacity, when in full operation, of around 40-50 million tonnes

Narasing Rao, chairman and managing director (CMD) of Coal India, while attending a seminar organized by the Mining, Geological and Metallurgical Institute of India, in Kolkata, last week, met the press and told them that plans are afoot to invite bids to appoint miners for seven new coal blocks.


The RFQ (request for qualification) is likely to be floated next week to short list miners to facilitate development of five open cast and two underground mines.

Eventually, Coal India hopes to develop 15 open cast and 12 underground mines, whose total production capacity, when in full operation, is estimated to be in the 40-50 million tonnes annually. Time frame has not been stated as a lot of work will still have to be completed.


It is gratifying to note that the entire process will be completed and contracts awarded, for these seven blocks, by March 2014. These seven blocks are estimated to achieve an annual production of 17-18 million tonnes. The actual development and production wholly depends upon the successful bidder and the speed at which he is able to obtain all necessary "clearances" to commence work at site.


It is expected that some foreign miners will also make bids this time, as this will enable them to offer advanced and technically superior mining equipments, some of which may not have been introduced to this market at all. Presumably, such equipments are already in use, successfully, at other mining areas in Australia and Europe/US. Some bids may be expected from UK and Poland also.


Since this will be a public-private partnership, some of overseas miners may be making the entry bids through their Indian associates, who may be fully conversant with the local conditions. At the end of the day, even though some advanced, state of the art equipments may be offered for use, in these new blocks, the fact remains that manpower requirements will have to be sourced locally.


What is of prime concern and importance is to go through the RFQ in an above-board and fair manner, award the contracts and lay down strict performance deadlines. Environmental issues are most likely stumbling blocks but in order to expedite the development, and reduce the dependence upon imported coal if the authorities were to tweak the rules, in a transparent manner, it may ease the situation.


Other factors, such as the nearest coal block in operation, details of existing railroads for logistical purposes, whether or not government owns the entire land covering the coal blocks, or part of which are privately owned, and the grades of coal that have been found on test drilling carried out, are important in expeditiously finalising the deals.


If Coal India can give further details on these blocks, it would be appreciated.

In the meantime, it would be of interest to know as if Coal India has any plans to rescue 3.5 million tonnes of coal lying in various ports, awaiting clearances, but the importers are reluctant to do so due to high rupee element cost, caused by the fall in value?

(AK Ramdas has worked with the Engineering Export Promotion Council of the ministry of commerce. He was also associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts; and later to the US.)


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