Gold under scrutiny: FinMin tightens oversight on bank lending portfolios

The finance ministry’s demand for granular data on gold metal loans signals a deepening regulatory push to monitor systemic risks and curb rising import pressures.

The North Block is tightening its grip on the gold sector. In an urgent communique dispatched to banks late Friday, the Department of Financial Services (DFS) demanded a detailed breakdown of gold metal loans (GML) and loans against gold, setting a sharp Monday deadline for compliance. Officials are seeking granular data, including the total value and quantity of loans, supplier information, and the size of collateral portfolios. This move follows a series of regulatory nudges, including a directive earlier this year for public sector banks to conduct a comprehensive audit of their gold loan books following reports of non-compliance and procedural irregularities.

A pattern of deeper surveillance

This latest information gathering isn't happening in a vacuum. With gold prices hitting record highs, the finance ministry and the Reserve Bank of India (RBI) are clearly concerned about how these assets are managed. Banks have been asked to scrutinize their systems, specifically looking for lapses like disbursing loans without adequate collateral or anomalies in fee collection. The RBI’s recent crackdown on non-banking lenders like IIFL Finance—citing serious deviations in how purity is certified—has clearly spooked the establishment, prompting this wider review across the banking sector.

Managing the import burden

For the bullion industry, the timing of these inquiries is critical. The government has already hiked import duties to 15% and tightened silver import norms to manage the trade deficit. Bankers are now bracing for what might come next. The current request for data on international suppliers and GML volumes suggests the government is searching for ways to curb fresh imports. Industry bodies have proposed an alternative: moving toward a system where banks use refined dore gold—the raw, impure form processed by domestic refineries—for GMLs, rather than relying on imported gold bars.

The bigger picture

Why does this matter? For the economy, this is a balancing act between maintaining liquidity for the jewellery sector and preventing excessive reliance on imported precious metals. The government is attempting to temper demand without choking off credit to a sector that supports countless livelihoods. The data requested by the ministry will likely be used to craft policy that encourages domestic sourcing. While the sector grapples with these compliance demands, the underlying message is clear: the era of "business as usual" for gold-backed credit is over. The state is now enforcing a rigorous framework to ensure that every gram of gold in the system is accounted for and properly valued.