What Is The Process Of Gold Loan Auction?

Gold loan schemes are financial products that allow individuals to avail of a loan amount by pledging their gold as collateral to the lender. Almost all Indian households hold some amount of gold as security for the future. There’s an age-old tradition of buying and gifting gold to celebrate special occasions. Gold, either in the form of gold coins, bars, and jewellery or in digital form such as Gold ETFs, has been a popular investment and hedging mechanism. Many people also buy and sell valuable old gold coins from auctions. It is also true that Indians are averse to selling off their gold ornaments to generate cash. This has made gold loans so popular. Like in any other loan, you should avail of one only when you are confident of repaying it on time. If you are unable to do so, your pledged gold could be auctioned off to recover the loan amount.

When is a Gold Loan Auction Process Initiated?

A gold loan borrower should be aware of the consequences of non-repayment of the loan. Once a borrower informs the lender of his inability to repay the loan or if he/she has continuously defaulted on payments, he/she becomes a Non-Performing Asset (NPA). In such a scenario, a lender like Muthoot Finance initiates gold loan auction proceedings against the defaulter. However, before starting the process, Muthoot Finance sends gold auction notices to the borrower.

In the event of a default, the lender can take the following actions against the borrower:

Levy Penal Charges: Lenders charge a penal rate of interest on the outstanding loan amount from the due date of the loan.
Send Reminders: The borrower is reminded through SMS/ Calls/Emails to alert them about the overdue loan amount.
Send Auction Notice: Even if after constant reminders the borrower hasn’t regularized the loan, the lender, say Muthoot Finance, sends a gold loan auction notice informing them that their gold articles will be in the auction. After the expiry of such notice, the lender may go ahead and follow the gold auction process.

Gold Loan Auction Process

As with the various aspects of availing of a gold loan, a borrower should also be aware of the gold loan auction rules in the event of non-payment. To enable lenders to follow a standardized, regulated and transparent procedure to recover gold loan debts, the gold loan auction notice format has been set in place by the Association of Gold Loan Companies. Once the borrower is termed a defaulter and the loan is declared an NPA, the lenders can use these provisions to sell the pledged gold articles through a public gold auction or online gold auction.

These steps are undertaken after the borrower has been served with gold auction notices in the set format and no action was been taken by the borrower.

Step 1:Appointment of Auctioneer:An independent auctioneer is appointed to oversee the gold loan auction proceedings. The auctioneer is selected after inviting applications, screening, and verification of qualified persons. It is followed by a vetting process by the lender’s board of directors.
Step 2:Place of Auction: The venue of the auction is communicated beforehand by the lender. It usually takes place at the branch of the lender from which the loan was disbursed to the borrower. The gold loan auction can also be conducted online.
Step 3:Advertisement of the Auction: The lender has to publish the gold loan auction notice in both a vernacular and an English newspaper. The notice should mention the date, time, and place of the auction, along with the included terms and conditions.
Step 4:Guidelines of the Auction: The fixed-minimum amount to be recovered must be communicated by the lender, reserve the price for the gold articles, and collect KYC documents of the branch staff and bidders. The lender must prominently display the gold articles to the auctioneers and the bidders before starting the gold loan auction.
Step 5:Delivery of the Auctioned Gold: The highest bidder can take delivery of the gold articles within three working days by depositing the balance bid amount via cheque, demand draft, or bank transfer. The lender must give a sell receipt to the bidder and receive a purchase receipt in return.
Step 6:Loan Adjustment: The sale proceeds received after the gold auction are adjusted against the borrower loan account. If the auction proceeds are lesser than the outstanding debt, the lender can demand the balance amount to be paid by the borrower. If the sale proceeds are higher than the recovery amount, the balance is refunded to the borrower.

About Muthoot Finance

Muthoot Finance is one of the most trusted financial services companies in India. They have multiple gold loan schemes for their customers. Ease of doing business, attractive offers and great customer service sets them apart. They help their borrowers repay their loans with flexible repayment options. Their transparent business practice is evident in their auction policy too.