The Reserve Bank of India vide circular DNBS.CC. PD. No.266 / 03.10.01 / 2011-12 dated 26 March 2012 titled “Guidelines on Fair Practices Code for NBFCs” has advised NBFCs to put in place an Auction Policy duly approved by the Board of Directors. This Auction Policy will replace, in full, the existing auction policy and all instructions arising there from.
The term “Auction” used in the policy shall mean realization of the security through Public Auction only.
Once the accounts have been identified and listed for auction by the Auction Department the proposal, in a structured format, shall be put up to the Credit Committee/Board for approval. The Auction Department shall ensure that the list is accurate, complete and in compliance with the approved Auction Policy.
| Letter Type | Normal Gold |
| Intimation cum Auction Letter | A notice in the local language, along with English translation, in an approved format, shall be sent to all “Actionable” pledges furnishing the date and venue of auction at least 14 days before the proposed date of auction by registered post AD requesting the borrower to immediately pay the full dues failing which the security would be liable to be put on auction, without further notice, for recovery of the dues. |
Public notification of auction/advertisement/display of information and other related procedures shall be in line with the applicable rules, regulations and RBI guidelines issued from time to time.
| Letter Type | Depletion in Security Value | Spurious/Low Quality: Identified at the branch or before completion of the tenure of the loan | Spurious/Low Quality: Identified at the auction centre or after completion of thetenure of the loan |
| Intimation Letter | A notice in local language should be sent to the borrower within 15 days of identification of loss in the account by registered AD calling upon the borrower to settle the loan within a maximum of 2 weeks from the date of receipt of such notice or replenish the security with additional gold failing which the company may dispose the gold through auction without any further notice. | A notice in local language should be sent to the borrower within 15 days of detection as spurious / low quality by registered AD calling upon the borrower to settle the loan within a maximum of 30 days from the date of such notice. The registered AD notice should refer to the rights conferred on the Company to dispose of the security by virtue of the undertaking of the borrower in the loan application form and clauses in the loan sanction letter (pawn ticket). | A notice in local language should be sent to the borrower within 5 days of detection as spurious/low quality by registered AD. The registered notice should clearly provide reference to the following details, inter alia:Completion of tenure of the loan.That auction notice had already been sent after completion of the tenure of the loan.That the Company had undertaken only a preliminary verification of the gold at the time of disbursing the loan and as per the right conferred on the Company as per the terms and conditions of the loan, to further check the purity/weight of the gold internally or by experts at any time, the purity of the gold was re verified at the auction centre prior to auction and was found to be of inferior quality.That the Company is proceeding with auction as already intimated. |
| Final Letter | In the case where the account remains unsettled after the issue of the above notice an auction notice furnishing the date and venue of auction shall be served on the borrower at least 14 days before theproposed date of auction. |
If the gold ornaments find no bidders at the reserve price the course of action as under should be adopted:
Appropriate accounting entries should be put through in the customer loan accounts within 15 working days after the full receipt of auction proceeds. Once auction of the pledged gold is completed in line with the norms of the Policy, and after receiving the bid amount, the relevant lot is settled with the successful bidder. Thereafter, the surplus from the said auction, if any, is first adjusted to the said Customer’s old loss and existing dues .The remaining surplus is to be refunded to the Customer in the following manner.
However, a rightful lien on such surplus may be retained, subject to proper notice, in case the borrower has other unsettled liabilities to the Company. Legal action for recovery of shortfall in individual accounts may be considered where required and justified after a cost-benefit analysis is done and put up to the Head-Operations and Executive Director for approval.
Customers whose pledges have been put to auction and where the company had suffered a loss the respective customer ids may be blocked based on the directions provided by the management from time to time.
In line with the FPC guidelines, Public Auction of the pledged security shall be carried out only through Auctioneers empanelled by the Company with the approval of the Board of Directors. A standard, legally vetted agreement should be entered into with all the empanelled Auctioneers.
The Company or any of its related entities shall not participate in the Auctions. Further, there shall be an arm’s length relationship in all transactions during the auction including with group companies and related entities.
All registers and records mandatorily required under law and as per instructions issued by the Company shall be properly maintained and updated under the safe custody of a designated senior official and subject to periodical internal audit. Suitable instructions should be issued in this regard. Compliance shall be ensured by the Head of the Auction Dept.