Gold Auction Policy


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.


  1. Public Auction

The term “Auction” used in the policy shall mean realization of the security through Public Auction only.

  1. Authorisation for Auction of Gold

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.

  1. Mode and Periodicity for Sending Notices, Intimation to the Borrower
Letter TypeNormal Gold
Intimation cum Auction LetterA 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.
  1. If the AD card is not received within a reasonable period, the Auction Dept. shall apply to the post office and obtain a certificate of delivery to the addressee from the post office. Alternatively, if the AD card is not available the auction notice may be served on the borrower personally by an employee of the Company and signature of the borrower obtained in the duplicate copy of the notice.
  2.  CEO shall be empowered to approve modifications to the above guidelines for Auction from time to time on the recommendations of the Department Head-Gold Loan Operations keeping in view, interalia, the regulatory directives, legal position and the Fair Practice Code adopted by the Company.
  1. Public Notification/Advertisement

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.

  1. Auction under Exceptional Circumstances
  1. Auction of Gold Ornaments Identified as Spurious / Low Quality
  1. Accounts in which pledge of spurious / low quality gold ornaments have been detected subsequent to disbursement may be taken up for auction even before the completion of the tenure of the loan, from date of pledge subject to the under mentioned compliances. The said procedures shall also be followed for spurious/low quality accounts/pledges, identified at the auction centre or after completion of the tenure of the loan.
  1. Proper notice/intimation shall be served upon the borrower
  1. Before serving the above notice the purity of the gold ornaments shall be re-verified internally through a competent officer / auditor. When the amount of initial estimated loss is Rs 1.00 lakh (Rupees one lakh) or above the services of an external expert appraiser shall be obtained before serving the above notice. Melt test (assaying) of a small portion of the pledged gold may be resorted to for re-confirming the purity or in the “difficult- to- assess” cases.
  1. The CEO or the delegated authority shall be empowered to grant extended time for repayment to the borrower on a case to case basis on the recommendations of the Head of the Operations Dept, Head Office.
  1. The reserve price for such spurious / low quality ornaments must be fixed keeping in view the reconfirmed assessed purity and the RBI directions issued from time to time. Expert internal / external opinion should be obtained to arrive at a realistic reserve price.
  1. Auction of normal/spurious or low quality gold ornaments shall not be taken up when police or criminal case has been filed against the borrower or when there is any other legal impediment pending with the enforcement agencies. Suitable internal guidelines regarding filing of police cases should be formulated and approved by the  CEO or the designated authorized person.
  1. Notice to borrowers identified in Point E – Depletion in Security Value and Point E –Spurious/Low Quality Gold.
Letter TypeDepletion in Security ValueSpurious/Low Quality: Identified at the branch or before completion of the tenure of the loanSpurious/Low Quality: Identified at the auction centre or after completion of thetenure of the loan
Intimation LetterA 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.
  1. Re-auction of Gold Ornaments Not Successfully Auctioned (Normal Gold/Spurious or Low Quality Gold)

If the gold ornaments find no bidders at the reserve price the course of action as under should be adopted:

  1. The Auctioneer shall submit in writing that no bid was made at the reserve price fixed due to the poor quality of gold or difficulty in assessing the correct purity. This shall be certified by the Company’s authorized official in charge of overseeing the Auction.
  2. Such gold ornaments shall be taken up for melting, either in-house or through a reliable outside agency, in the same lots as taken up for auction. Auctioneer/ his representative shall remain present during the melting activity along with a competent Internal Auditor of the Company who will certify accordingly in a register to be maintained for the purpose.
  3. The melted bars shall then be assayed for purity and put up for auction in such form with a fresh reserve price fixed.
  4. Compliance with the above steps shall be periodically subject to internal audit at intervals not exceeding 1 calendar quarter.
  1. Refund of Surplus, Recovery of Shortfall

 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.

  1.  If the Customer has already updated his/her bank details, the surplus to be refunded through NEFT. Confirmation shall be sent to the customer through SMS or the email available with the branch

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.

  1. Panel of Auctioneers, Commission Rates, Role & Responsibility

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.

  1. Bidding for Gold by Company / Related Entities, Maintaining Arm’s Length Relationship

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.

  1. Maintenance of registers / records

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.