Bullion has become a safe collateral for banks to float loans and such
loans have jumped by 30 per cent in the last one year. However, the
central bank has asked financial institutions to be vigilant about such
loans.
The amount of loans obtained against gold as collateral has increased by Rs seven billion in the last one year. By mid-August 2012, financial institutions had loaned Rs 23.4 billion against gold and silver as collateral under consumable loan heading. By mid-August 2013, the amount has gone up to Rs 30.4 billion.
However, the central bank has found that many individuals are lending money to other people by taking bullion as security and later obtaining loans from banks at a lower interest rate by keeping the same gold and silver ornaments as collateral. Nepal Rastra Bank (NRB) has asked financial institutions to accept gold and silver as collateral only if the objects provided by the borrower are in a single pouch. Likewise, financial institutions have been asked to properly get the bullion examined for purity before forwarding any loan.
However, if financial institutions have already floated loans against such multi-pouched bullion contents as collaterals, they are required to provision 100 per cent of the lent amount for possible loan loss.
Placing cent per cent loan loss provision is expected to make banks vigilant about such loans, said an official at the central bank’s regulation department, adding that “NRB had been receiving complaints that some middlemen are taking bullion as collateral and floating loans, and then again borrowing from financial institutions by keeping the same ornaments as collateral.” “Anyone who is keeping the ornaments as collateral will not keep it in multiple pouches or boxes so it is an efficient way to detect any shady dealings,” added the official.
Financial institutions provide gold and silver loans at 12 per cent to 15 per cent interest rate, while informally money lenders charge up to 30 per cent interest for such informal lending.
Though NRB forbids anyone except licensed financial institutions that have obtained permission to issue gold or silver loans to lend against gold collateral, there are lots of money lenders and even jewellers engaged in such dealings
source: the himalayan times,27 Sep 2013
LINK
The amount of loans obtained against gold as collateral has increased by Rs seven billion in the last one year. By mid-August 2012, financial institutions had loaned Rs 23.4 billion against gold and silver as collateral under consumable loan heading. By mid-August 2013, the amount has gone up to Rs 30.4 billion.
However, the central bank has found that many individuals are lending money to other people by taking bullion as security and later obtaining loans from banks at a lower interest rate by keeping the same gold and silver ornaments as collateral. Nepal Rastra Bank (NRB) has asked financial institutions to accept gold and silver as collateral only if the objects provided by the borrower are in a single pouch. Likewise, financial institutions have been asked to properly get the bullion examined for purity before forwarding any loan.
However, if financial institutions have already floated loans against such multi-pouched bullion contents as collaterals, they are required to provision 100 per cent of the lent amount for possible loan loss.
Placing cent per cent loan loss provision is expected to make banks vigilant about such loans, said an official at the central bank’s regulation department, adding that “NRB had been receiving complaints that some middlemen are taking bullion as collateral and floating loans, and then again borrowing from financial institutions by keeping the same ornaments as collateral.” “Anyone who is keeping the ornaments as collateral will not keep it in multiple pouches or boxes so it is an efficient way to detect any shady dealings,” added the official.
Financial institutions provide gold and silver loans at 12 per cent to 15 per cent interest rate, while informally money lenders charge up to 30 per cent interest for such informal lending.
Though NRB forbids anyone except licensed financial institutions that have obtained permission to issue gold or silver loans to lend against gold collateral, there are lots of money lenders and even jewellers engaged in such dealings
source: the himalayan times,27 Sep 2013
LINK
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