Banks that are nominated to import gold as per extant instructions of RBI, may extend Gold (Metal) Loans to domestic jewellery manufacturers, (who are not exporters of jewellery) for non-export purpose and also to the jewellery manufacturers and exporters. Gold (Metal) Loans can be sanctioned only to gold jewellers, who are themselves manufacturers of gold jewellery. The jewelers who have borrowed under GML scheme cannot sell the gold to any other party to manufacture jewellery. The Loans provided by banks for the domestic jewellery manufacturers should not exceed 90 days. Banks are required to ensure end-use of gold loans to jewellery manufacturers and adhere to KYC guidelines. Further it is necessary to obtain adequate margin and collateral security to the bank finance in view of the volatility of the gold prices all the time.
RBI guidelines on lending to jewellers
RBI in its notifications dated April 2, 2014 to Gold Metal Loans (GML) lenders said that ‘not carrying out detailed credit appraisal, lack of proper monitoring mechanism and not able to monitor the end use of bank finance’ resulted in frauds/misuse of funds released by the banks. The Central bank directed the banks to strengthen their credit appraisal process in the wake of frauds committed by unscrupulous jewellers. The regulator also said in its circular that some GML providing banks are extending gold metal loans to jewellers mainly relying on stand-by LC/BG (letter of credit/bank guarantee) issued by other banks (non-nominated banks), without carrying out detailed credit appraisal. If the sales proceeds are not routed through GML providing banks, they are not able to monitor the end use of the gold lent. Banks are instructed to carry out the appraisal of non-fund based limits like standby LC/LG at par with the fund based limit. While assessing the credit requirement of GML customers, lenders need to take into account the track record and credit worthiness of borrowers, trade cycle of manufacturing activities, and collateral securities on offer. The credentials of jewellery makers availing GML need to be established by inputs from the market as well as from other sources, including credit information companies. RBI also said banks offering GML may obtain relevant information from borrowers and share them with stand-by LC/BG-issuing banks. Inspection of stocks, quality check of the gold stock, verification of insurance cover, etc may be undertaken jointly or on rotation basis by the GML- providing bank and stand-by LC/BG issuing bank.
While appraising credit proposal the following documents are normally examined.
- Tax Registration (GST)
- Retail Jewelery Business Registration/Trade Licence,
- Shops and Establishment License.
- Rent agreement with last rent receipt OR Sale/ Lease Deed agreement.
- Certified business account statement, Income Tax and Sales Tax Assessment Orders, VAT turnover statement (or GST),
- Orders copy and other related papers if any;
- The property offered as a security will be inspected and related documents are verified.
- No due certificate from existing banker,
- CERSAI & Credit information reports (CIBIL report etc.) of the proprietor/partners will be examined.
- Proof of residence like voter card,/Telephone bill, Electricity Bills, Registered lease deed, Sale agreement etc. will be verified before entertaining borrower’s request for facility.
- In case, the applicant is operating his/her account with other banks, Current account original statement is verified. Property offered as security will be inspected and title records of security offered are investigated.
In case of corporate borrower following additional documents are verified;
Certificate of Incorporation, Memorandum of Association, Articles of Association, Certificate for commencement of Business (for public limited companies), List of Directors, Share Holding pattern, Power of directors, common seal, Securities for Bank Advances, CIBIL report of the directors and the company, Search report of the company from the ROC to be verified by the bank to ensure that there is no prior charge on the assets to be offered to the bank as a security. Profile of directors of the company, CERSAI & Credit information reports (CIBIL report etc.) report on them will be called for. Banks also verify whether the purpose and provisions to raise loans is incorporated in the memorandum of the company and find out the authorized person/ Signatory to the Documents, Legal Opinion on creation of charge on assets of the company would be obtained.