Mumbai, Apr 9 (PTI) In a bid to safeguard interest of borrowers, the Reserve Bank on Wednesday issued draft guidelines on prudential norms and conduct-related aspects for gold loans urging lenders to have uniform documentation for such instruments.

Lenders should ensure that a standardised procedure is put in place to assay the purity of gold collateral, its weight (gross as well as net), etc and procedure needs to be adopted uniformly across all branches of the lender, RBI said in a draft regulation.

Details of all procedures framed in terms of the policy shall be displayed on the website of the lenders for information of customers, it said.

"Lenders shall ensure presence of the borrower(s) while assaying the collateral at the time of sanctioning the loan. The deductions relating to stone weight, fastenings, etc., as part of the assay procedure shall be explained to the borrower(s) and details incorporated in the certificate to be issued," it said.

Besides, it said, documentation should be standardised across all branches of the lender.

The loan agreement should cover the description of the gold collateral taken as security, value of the collateral, details of auction procedure and the circumstances leading to the auction of gold collateral, the notice period which should be allowed to the borrower for repayment/ settlement of loan before the auction is conducted, it said.

All communication with the borrower, especially the terms and conditions of the loan, or other important communication which affects the interest of the borrower or the lender, including a breach of the prescribed LTV ratio, shall be in the language of the region or in a language as chosen by the borrower, it said.

For illiterate borrowers, it said, lenders should explain important terms and conditions in the presence of a witness.

Gold loan financier Indel Money CEO Umesh Mohanan said the rate cut decision of RBI would lead to an overall improvement in the business sentiment and an uptick in consumption and that will lift gold loan demand, especially when the gold price is hovering around an all-time high. PTI DP DP SHW

Standardised conduct norms for gold loans require uniform assay, documentation, transparent auction terms and borrower-language communication. RBI's draft mandates standardised documentation and uniform assay procedures across all lender branches, requiring borrower presence during assay and written certificates recording deductions for stone weight and fastenings, with procedure details displayed on lender websites. Loan agreements must describe and value gold collateral, set out auction procedures and triggering circumstances, and specify the notice period before auction. All material communications, including breach of prescribed LTV limits, must be in the regional language or a borrower-chosen language, and important terms must be explained to illiterate borrowers in the presence of a witness.