Amid uncertainty caused by the COVID-19 pandemic, consumer activists have called for an introduction of nomination facility in the loan against gold scheme offered by banks and non-banking financial companies.

“The easiest way for people to raise money to tide over the hardship caused by the pandemic was availing loan by pledging their gold. When the borrower who has availed the gold loan dies, there is a problem in settling the outstanding amount and claiming back the pledged ornaments,” consumer activist T. Sadagopan said. The Reserve Bank of India should direct the providers of gold loan to offer a nomination facility at the time of availing the loan, he added.

Tamil Nadu is a key market for gold loans and the size of the market is estimated to be ₹ 6 lakh crore.

In many cases the legal heirs of the borrower might not be aware of the existence of such a gold loan and details of it, until a notice from the bank or the financial institution was received by the client’s family, C.M. Jayaraman, president of Consumer rights organisation Citizens’ Voice Coimbatore, said.

This led to the account being declared an NPA. The settlement and taking back the pledged gold was taking a longer time and becoming a cumbersome process, he said. Mr. Jayaraman pointed out that in the case of death of the borrower so many procedures such as production of death certificate, legal heirship certificate among others, were involved

Even if a close relative of the borrower was ready to repay the entire loan, still the settlement took a long time since the same had to be approved by the appropriate authority after production of the necessary documents, he said.

In majority of cases people did not know the procedure for getting back the ornaments and had to run from pillar to post for getting the necessary documents.

He said such a situation could be avoided by making available a nomination facility which was a common practice in case of opening bank account, fixed deposits, housing loan etc. and would remove the current hardships.