Gold and Gold Ornaments constitute one of the soundest forms of security for banker’s advance as they are considered to be safe and liquid in all respects. Let’s know the procedures of bank loan against gold
The supply of these metals being relatively scarce, they enjoy universal marketability and steady prices. For that reason, you must get a bank loan against gold.
What makes them more attractive to the bank is their attribute of portability, with the result that they can easily be stored in the bank’s strong room. There is no problem of valuation. The valuation of the gold and gold ornaments is based on the weight and the fineness of gold contents only.
This type of borrowings is very popular in rural and semi-rural areas, and both institutional and non-institutional agencies have their share in such loans.
Practice and procedures of bank loan against gold
- Advances against gold and gold ornaments are normally allowed to regular customers or others who have duly introduced accounts with the bank. An unknown person should not be entertained by a banker.
- Advance against pledge of gold or gold ornaments should not be allowed to a male person only as no male owns ornaments. The loan should be sanctioned to ladies only or, to a lady and a male jointly, in order to avoid future complications as regards ownership. The banker has to ensure that the p[arty pledging the gold is the true owner. A stamped declaration is taken from the borrower confirming ownership and fullest right over the ornaments pledged to the bank.
- No gold should be accepted as security unless the same is tested and certified by a goldsmith duly appointed by the bank. The goldsmith will certify the quality, weight, and market value of the actual gold contents of the ornaments.
- The valuation of gold is based on the weight and the fineness of the gold constants only, i.e., on pure gold.
- Gold ornaments often contain wax, string, fastening, etc. As well as precious stones. The weight of all these should be deducted for gross weight to arrive at actual gold contents.
- A suitable margin against actual gold is retained.
- It should also be ensured that the gold ornaments do not contain names inscribed other than that of the borrower.
- Advance against gold ornaments should not be allowed to run indefinitely for a long time but should be repaid within a year or two.
- When all formalities are completed, ornaments are then put into small canvas cloth bag duly sealed in presence of the Manager and the Chief cashier in whose point custody they are kept in the safe in the strong room. To facilitate easy identification, each bag is fastened with a small cardboard ticket mentioning the name of the party, loan number, amount advanced and the date of advance.
- When a loan is fully liquidated, the gold or good ornaments are delivered to the borrower against the surrender of a receipt duly discharged by the borrower. The signature of the borrower acknowledging receipt of the gold should also be obtained in the security register.
- While returning the gold, the receipt issued to the borrower at the time of allowing the loan should be taken back.
- If the loans are liquidated after the death of the borrower, the gold can be delivered to legal heirs.
- Where the borrower defaults continuously in paying the installments and interest and, if the loan is getting time-barred, the gold may be sold in auction as per rules to recover the bank’s dues.
Documents required for bank loan against gold
- Application in the prescribed form with details of the securities
- demand promissory note
- Delivery Note of securities
- Certificate of the approved gold sector
- Declaration of ownership by the borrower
- Letter of continuity (in case of overdraft account)
- Letter of Lien
- Letter of guarantee (in case of advance to a third party)
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