The Reserve Bank of India vide its Master Direction no. DNBR.PD.008/03.10.119/2016-17 on Non-Banking Financial Company - Systemically Important Non-Deposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016 as updated from time to time advised NBFCs to put in place an Auction Process duly approved by the Board of Directors.
Process for auction of gold jewellery
The gold loan auction process involves realisation of the value of gold pledged by the defaulting borrowers after providing adequate prior notices if the borrower(s) have defaulted in payment of their outstanding loan amount in the following scenarios:
- as per the loan repayment schedule or due to failure in providing the margin money, as per the terms of the gold loan and requested by the company- Bajaj Finance Limited; or
- in case of downward fluctuations in the rate of Gold fixed by the company at the time of gold loan application.
The company could exercise the right of recovery by conducting an auction. Before the auction, the defaulting borrowers will be contacted through various means of communications (such SMS, Interactive Voice Response (IVR), voice calls) as well as by default and auction notices, requesting them to pay the outstanding dues and with clear communication that Bajaj Finance Limited will initiate the auction of the gold pledged in the case on non-payment. After the expiry of the notice period, public notice will be issued in line with RBI guidelines, vide newspaper advertisement in at least two newspapers, one in a vernacular language and another in national daily newspaper inviting bids for participating in the auction.
To expedite the recovery of loan outstanding dues, the process is designed to complete the auction within a time-bound manner.
Appointment of auctioneer
- Applications will be invited for empanelment as an auctioneer from established and reputed auctioneer/ auctioning agencies;
- Applications will be screened, and the auctioneers will be selected based on defined parameters;
- Selected/ empaneled auctioneers will be approved by the Board of Directors of Bajaj Finance Limited/ Managing Director under the authority as delegated by the Board of Directors;
- Payment will be defined as per market rate and timing of auction;
The auction may also be conducted by an independent internal team of employees specifically appointed for this purpose. Officials in such a team should have the requisite skills to act as auctioneers. The officials in the team shall travel to the respective auction locations to conduct the auctions.
Role of auctioneer
- The auctioneer is responsible for the conduct of the auction fairly and transparently.
- The auctioneer to ensure that the bidder submits duly filled-in application forms and earnest money deposit according to auction terms.
- The auctioneer will encourage competitive bidding and ensure that the bid value is not below the rate of gold published by India Bullion and Jewellers Association Limited on the date of the auction.
- The auctioneer will take proper and reasonable measures to ensure that bidders do not collude in any manner in the auction process.
Place of auction
The auction shall be conducted in the branch or town or taluka in which the branch that has extended the loan is located. In case the auction could not be conducted at the branch on the scheduled auction day due to many reasons like lack of minimum number of bidders, etc. The branch will display in the branch notice board the location where the next auction will be carried out subsequently with the date of subsequent auction.
Events of default
The occurrence of any (or a combination thereof) of the following indicative events or circumstances shall constitute an event of default (the “Event of Default”):
- The borrower fails to pay any EMI or the outstanding dues on or before the due date or commits a breach of any of the terms, covenants or conditions contained in the gold loan documents;
- if the required margin is not maintained;
- If the gold jewellery deposited is found to be fake, defective, stolen, spurious or of inferior quality;
- If the borrower commits an act of insolvency or if the borrower is adjudged or declared insolvent or bankrupt or if a liquidator, receiver or official assignee is appointed in respect of any property or estate of the borrower;
- The lender, for any regulatory or other reasons, is unable or unwilling to continue the loan;
- The borrower defaults in payment of any other loan with the lender or any other creditors;
- If any representations or statements or particulars provided in the application form and under the loan documents are found to be false, misleading or incorrect;
- There exist any circumstances that jeopardize the lender's interest in the lender's opinion.
Gold jewellery auction procedure
The gold auction process incorporates the auction of the gold jewellery pledged by the Borrower in the event of default by the Borrower(s), as enumerated under “Events of Default” as mentioned above. In the event of default, Bajaj Finance Limited may initiate the auction process. The auction process involves the following steps:
- Default/ intimation notices to the borrower
- Pre-auction intimation notice to the borrower
- Advertisement for conducting auction
- Guidelines to conduct auction
- Documentation of auction event
- Delivery of gold jewellery
- Loan adjustment
- Communication to the borrower
Read on for more details of each of the steps involved in the gold auction process:
1. Default/ intimation notices to the borrower
- An intimation notice (“Intimation Notice”) will be served on the borrower(s) at the address as mentioned in the Gold Loan Application Form or any such subsequent change in address, as may be intimated to Bajaj Finance Limited by the borrower(s), minimum 15 days before the scheduled repayment due date.
- 1st Default Notice after a minimum of 15 days of default from the scheduled repayment due date of the loan or interest payment date, as the case may be.
- In case of shortfall in the margin due to downward fluctuations in the rate of gold or upward movement in the rate of interest, the borrower shall be communicated to make good of such shortfall in margin within 3 days of the occurrence of the shortfall. Such communication by the company shall be given over telephone number(s) as provided by the Borrower in the Loan Application Form. In addition to it, an intimation notice (“Intimation Notice”) will also be issued on the date of shortfall in the margin to the borrower to make good the margin within 3 days.
It should be ensured that Bajaj Finance Limited must be covered fully in the collateral value offered by the borrower for the principal and the accumulated interest. One of the triggers for auction would be where the margin falls below 15%.
The said notice(s) mentioned hereinabove will be sent to the Borrower(s) through Registered Post with Acknowledgement Due (RPAD.) or by Courier or by hand delivery with due acknowledgment. Suppose these notice(s) issued by Bajaj Finance Limited is/ are returned un-served/ undelivered. In that case, the concerned branch of Bajaj Finance Limited shall retain in its record the return notice with appropriate remarks mentioned thereon.
Note: For all notices sent by Bajaj Finance Limited through RPAD/Courier, in case the acknowledgment is not received or the postal authority does not return RPAD postal envelope, it will be assumed that the notice is deemed to be served on the addressee within 4 (four) days from the date of dispatch.
2. Pre-auction intimation notice to the borrower
Suppose the Borrower(s) fails to repay the dues despite serving above mentioned Notices. In that case, an ‘Auction Intimation Notice’ will be served after the expiry of 21 days from the date of issuance of the Default Notice, which will explicitly inform the Borrower about an auction of the pledged gold jewellery of the borrower any time after the expiry of 12 days from the date of issuance of the ‘Auction Intimation Notice’ to realize any amounts outstanding under the Loan along with incidental expenses which will include all the costs/ expenses (e.g., auction expenses, legal expenses, taxes, etc.) and the shortfall connected therewith. Also, the ‘Auction Intimation Notice’ will explicitly mention that if the realized value is not sufficient to discharge the outstanding under the Loan as mentioned hereinabove, Bajaj Finance Limited will initiate appropriate legal proceedings against the Borrower.
- In case of downward fluctuations of the rate of gold or upward movement of the rate of interest, if the Borrower fails to settle the dues within a specified period as mentioned in the Intimation Notice mentioned above, the ‘Auction Intimation Notice’ will be served within four (4) days of issuance of the Intimation Notice informing the Borrower about the initiation of the auction of the pledged gold jewellery.
- The Auction Intimation Notice shall mention the date, time and place of the auction.
3. Advertisement for conducting auction for due date breach cases
Auction notice for the auction of the gold jewellery will be published in two newspapers, i.e., one in the local newspaper in vernacular language and another in a national daily newspaper, about the proposed auction sale of the pledged gold jewellery. Auction Notice should, among other things:
- include a clear mention about the date, time and place of proposed auction; the loan number material terms and conditions of the auction sale.
- specify that the sale of pledged jewellery is on an “as is where is basis”;
- state that Bajaj Finance Limited reserves the right to refuse any or all bids and to defer/ withdraw the auction without assigning any reason to the bidders at any time during the process of the auction sale; and
- mention that, in the absence/ failure/ cancellation of the public auction sale, Bajaj Finance Limited may, at the instance of the Borrower(s), also reserve its right to sell the pledged jewellery through a private sale.
4. Guidelines to conduct auction
The auction shall be conducted, as under:
- The pledged gold jewellery will be displayed to auctioneers as per the pre-approved terms and conditions.
- Bajaj Finance Limited or its on-roll employees shall NOT bid in the auction held.
- Bajaj Finance Limited will fix a minimum amount to be recovered from the bidding of each pledge based on the valuation of gold jewellery. The recoverable amount includes the principal and interest outstanding under the Loan and all the costs, expenses including notice and auction expenses and shortfall connected in addition to that.
- While auctioning the gold, Bajaj Finance Limited shall declare a reserve price for the pledged gold jewellery. The reserve price for the pledged gold jewellery shall not be less than 85 per cent (or as may be advised by RBI from time to time) of the previous 30-day average closing price of 22-carat gold as declared by Indian Bullion and Jewelers Association Limited (IBJA).
- While conducting the auction, Bajaj Finance Limited’s official should endeavor to realise the full market value for gold jewellery pledged on auction. The company’s branch staff shall identify themselves with the bidders participating in the auction by collecting their KYC documents (e.g., PAN Card, Driving License, etc.). The signature of bidders shall also be obtained in a separate register.
- All Bid participants will have to pay a certain amount (as may be decided on a case-to-case basis) as Earnest Money Deposit (EMD).
The sale shall be concluded in favor of the highest bidder.
5. Documentation of auction event
The auction process shall be documented by recording chronologically as per the steps given below, and such details of the auction shall be kept on record:
- A brief summary of the auction proceedings;
- Name of the highest bidder;
- Amount realised;
- Delivery of the gold jewellery to the respective successful bidder; and
- The occurrence of the above proceedings shall be recorded and signed by the concerned authorized official of Bajaj Finance and at least by two neutral witnesses with no affiliation to the successful bidder.
6. Delivery of gold jewellery
The successful bidder has to take delivery of gold jewellery within three working days from the date of the auction by depositing the balance amount of the bid. The balance amount of the bid should be paid by the bank through a bank transfer, demand draft or pay the order in favor of Bajaj Finance Limited payable at Pune or a specified branch. The purchase receipt should be obtained from each of the successful bidders after full payment and at the time of delivery of the gold jewellery. In the event of a successful bidder fails to comply with the payment terms, the Earnest Money Deposit of such bidder shall be forfeited as per the auction terms and conditions, and Bajaj Finance shall be at liberty to sell the pledged gold jewellery by way of public/ private sale at its discretion.
In case of a private sale at the instance of the borrower(s), to ensure transparency, Bajaj Finance Limited may invite offers from local jewellers/ interested persons for each item or in smaller lots.
7. Loan adjustment
The auction sale proceeds should be adjusted against the Borrower's account opened with Bajaj Finance in relation to the Loan (“Loan Account”). If the sale proceeds are less than the total dues, Bajaj Finance shall immediately serve on the borrower a demand notice for recovery of the balance dues. If the sale proceeds are more than the total dues, the excess/ surplus amount shall be refunded to the Borrower.
8. Communication to the borrower
After completion of auction sale proceedings, the concerned Bajaj Finance branch shall inform/ intimate the borrower(s) about the auction sale by way of a letter giving therein the following details:
- Amount received from bidder(s) by way of auction sale;
- Surplus or deficit in the loan account after crediting the auction sale proceeds;
- Further recovery action to be initiated for deficit/ shortfall in the loan account which the borrower(s) is supposed to make good;