NEW DELHI: The Minister of State for Finance, Pankaj Chaudhary, has sharply criticised a glaring issue: a fundamental lack of transparency in the auction of pledged gold jewellery by defaulters.
During a recent Rajya Sabha session, Chaudhary described the process as deeply troubling—adding that it often ends with borrowers recovering far less than the actual market value of their pledged assets.
The Reserve Bank of India (RBI) confirmed these concerns in a major audit issued in September 2024, flagging multiple irregularities: gold valuation conducted without the borrower’s presence, inadequate due diligence, inconsistent loan-to-value (LTV) monitoring, recycling of loans, and critically, non-transparent auctions that dramatically under-price collateral.
Experts warn these issues go beyond bookkeeping – they undermine borrower rights. Legal professionals and consumer advocates suggest that poor auction practices of gold jewellery can amount to systematic exploitation.
In some cases, borrowers report their pledged gold – valued at Rs6,000 per gram – being auctioned for nearly half that price on the open market. Another account describes customers waiting months to recover excess auction proceeds they legally deserve: “The lender hasn’t refunded the excess even seven months later,” lamented one borrower on online forums
RBI demanded that all gold‑lending entities – banks and NBFCs – complete a comprehensive policy overhaul within three months, or face strict supervisory action, including licensing restrictions. These reforms focus on ensuring proper borrower presence during valuation, transparent auction practices, accurate LTV compliance, and rigorous governance over third-party service providers.
Why consumers should be worried
With gold loans surging by 30–50 per cent between September 2024 and early 2025, and gross NPAs in gold loans climbing to Rs4,470 crore for NBFCs and Rs2,162 crore for banks, the risks are real.
Borrowers in distress, often from rural or low-income backgrounds, face significant financial loss due to undervalued auctions and weak grievance redressal. Experts argue this not only hurts consumers, but also dents trust in one of the key credit instruments serving financial inclusion.
Industry insiders suggest that some bidders at auctions may form informal cartels, while internal or outsourced staff may prioritise speed over fairness. Without proper buyer vetting or live market references, auction prices often remain artificially depressed.
Analysts also point to a lack of public oversight or standardised auction rules enforced across lenders.
Regulators have indicated that persistent under-recovery in these auctions could worsen banks’ bad loan ratios by shrinking collateral value, and could ultimately slow down the aggressive growth seen in the gold-loan segment.
The path ahead
With RBI’s April 2025 proposals introducing stricter norms – such as limits on top‑ups, prohibiting dual pledges on the same gold, standardising purity/weight assessments, and mandating end-use monitoring – the onus is now on lenders to rebuild procedural integrity.
Whether reforms are implemented in full, and whether tribunals or consumer courts enforce refunds of unearned auction proceeds, will determine if India can turn this flagged practice from a scandal into a safeguarded credit tool.
