The Reserve Bank of India had issued Master Direction DNBR.PD.007/03.10.119/2016-17, Master Direction - Non-Banking Financial Company –Non-Systemically Important Non-Deposit taking Company (Reserve Bank) Directions, 2016 wherein NBFCs were advised inter alia to put in place an “Auction Policy”, duly approved by the Board of Directors This policy is drafted on the basis of the guidelines contained in the above referred Circular and replaces all existing policies/instructions regarding auction of articles pledged/hypothecated for the purpose of extinguishing the liability of borrowers who fail to repay their liability on account of loans availed against their security.
Gold Loans are sanctioned against pledge of gold jewellery as collateral security. Loans are generally granted for a maximum tenure of 12 months or for any other periods as specified in the scheme under which the loan is granted.
As per the terms and conditions of sanction, the loan should be closed on or before the due date as per the maximum tenure specified by repaying the principal along with interest due up-to-date and other charges if any. The ornaments are liable to be auctioned for realization of the dues, in case of non-redemption of the ornaments by the borrower by paying the dues on or before the due date as per the sanctioned tenure mentioned in the pledge letter. The term “auction” used in the policy shall mean realization of the security (pledged gold ornaments) created against the loan in public auction.
Notwithstanding anything stated herein, the Company reserves its right to call up the loan and auction the gold without waiting for expiry of the sanctioned period stipulated above in case of eventualities leading to probable loss on account of shortfall in the value of security due to fluctuations in Gold Price or any other reasons or any other contingencies, after giving a minimum of 14 days’ notice to the borrower.
However, the Company shall make earnest efforts to reduce the number of auctions by sending periodic communications to Customers for persuading them to pay interest periodically and release the jewellery by paying the dues before the due date or renew the loan by paying the interest up-to-date and the differential in eligible loan amount as per the then prevailing LTV. In tune with the above guiding principles, the auction policy and procedure for conducting the auction shall be as follows:
(a) All notices to customer shall be served in the local language.
(b) Borrower shall be served an ordinary notice by the branch followed by one registered notice with AD notice.
(I)Ordinary notice shall be served by the branch when the total receivable (principal + interest) exceeds 90% of the realizable sale value of the pledged gold or on its due date
(II) First registered notice shall be sent by the HO by post with acknowledgement due (registered with AD) when the total receivable (principal + interest) exceeds 95% of the realizable sale value of the pledged gold or when the account is overdue for closure.
(c) Where default continues for 3 weeks after serving registered notice and on receipt of acknowledgement from customer, the company will proceed with steps for auction. The signature in the acknowledgement should be cross verified with the signature of the customer as per the records in the company. If there is any mismatch in the signature of the customer in the acknowledgement, new registered notice with AD should be sent to the customer.
(d) The auction shall be announced to the public by issue of advertisements in at least two newspapers, one in vernacular and another in national daily newspaper. However, the customer shall retain right to redeem the gold until auction
(e) Auction shall be conducted after 7 days of advertisement.
(f) As a policy, the company themselves shall not participate in the auctions.
(g) Gold pledged shall be auctioned only through auctioneers approved by the Board.
(h) The auction shall be conducted in the same town or taluka in which the branch that has extended the loan is located. The company can however pool gold jewellery from different branches in a district and auction it at any location within the district, subject to meeting the following conditions:
(i) The first auction has failed.
(ii) The company shall ensure that all other requirements of the extant directions regarding auction (prior notice, reserve price, arms-length relationship, disclosures, etc.) are met.
(i) While auctioning the gold a reserve price for the pledged ornaments must be declared. The reserve price for the pledged ornaments shall not be less than 85 per cent of the previous 30 day average closing price of 22 carat gold as declared by the Bombay Bullion Association Ltd. (BBA) or the historical spot gold price data publicly disseminated by a commodity exchange regulated by the Forward Markets Commission and value of the jewellery of lower purity in terms of carats shall be proportionately reduced.
(j) The company should keep record of full details of the value fetched in the auction and the outstanding dues adjusted and any amount over and above the loan outstanding shall be paid to the borrower.
(k) Any deviation from the laid down procedures shall be made only with the mail approval from Head Office.
(l) All ADs/notices returned, Auction registers and records shall be properly filed and maintained.
(m) The company shall disclose the details of the auctions conducted during the financial year including the number of loan accounts, outstanding amounts, value fetched and whether any of its sister concerns participated in the auction in the Annual Report.