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. The direction advised NBFCs to put in place an auction process duly approved by the Board of Directors.
Process for auction of gold jewellery
People who take a loan against gold should know the consequences of not paying it back. When a borrower tells the lender that they cannot pay back the loan, they are called a “Non-Performing Asset” (NPA). This also involves missing of payments. In this case, Bajaj Finance starts the process of selling the borrower's gold at auction. But the company sends the borrower enough notice of gold auctions before they begin.
Before the auction, borrowers who are unable to pay back the loan are contacted through SMS, Interactive Voice Response (IVR), voice calls, and default and auction notices. The notice requests the borrowers to pay the outstanding dues. It also states clearly that if the money is not paid, Bajaj Finance Limited will start the auction of the pledged gold jewellery. After the expiry of the notice period, the company issues the notice in line with RBI guidelines. The notice is then put in at least 2 newspapers, one in a local language and one in a national daily newspaper. These advertisements call for bids from people who want to take part in the auction.
The process is set up so that the auction ends within a certain amount of time. This is done so that loan payments can be collected more quickly.
Appointment of auctioneer
The auction is conducted by an auctioneer, as per the following guidelines:
- Reputed auctioning agencies are asked to submit applications for auctioneer positions.
- Applications are screened, and the auctioneers selected based on defined parameters.
- The Board of Directors of Bajaj Finance Limited approves the auctioneers who are chosen or put on the list. This can also be done by the Managing Director, if the Board of Directors gives them the power to do so.
- Payment is defined as per market rate and timing of auction.
The auction is carried out by an independent internal team of employees specifically appointed for this purpose. Officials on this team should know how to act as auctioneers. The officials on the team will go to each auction site to run the auctions there.
Role of auctioneer
The auctioneer will act as a mediator to make sure the auctioning process goes smoothly by doing the following:
- The auctioneer is responsible for the conduct of the auction fairly and transparently.
- The auctioneer is supposed to ensure that the bidder submits duly filled-in application forms. It should also include the earnest money deposit according to auction terms.
- The auctioneer encourages competitive bidding. They also make sure that the bid price is not lower than the price of gold published by India Bullion and Jewellers Association Limited on the day of the auction.
Place of auction
The auction is held in the branch, town, or taluka where the loan was given. If the auction does not happen at the branch on the day it was supposed to, the location and date of the next auction is posted on the branch's bulletin board.
Events of default
Any one of the following events or situations, or a combination of them, will be considered an event of default:
- If the borrower fails to make the required interest repayment as per the chosen frequency or the outstanding dues on or before the due date
- If the borrower 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
- If a liquidator, receiver, or official assignee is appointed in respect of any property or estate of the borrower
- If the lender, for any regulatory or other reasons, is unable or unwilling to continue the loan
- If the borrower defaults in payment of any other loan with the lender or any other creditors
- If any representations, statements, or particulars provided in the application form and under the loan documents are found to be false, misleading, or incorrect
- If there exist any circumstances that jeopardise the lender's interest in the lender's opinion
What is gold loan auction?
Gold loan schemes offer a way to borrow money by using your gold as collateral. When you need immediate funds, you can secure a gold loan against your gold jewellery. Once the gold jewellery is evaluated, and funds are disbursed, you will need to repay the loan along with interest over time.
However, if you are unable to repay, the lender might auction your gold to recover their money. This process helps the lender recoup the money they lent you when things don't go as planned. Online gold auctions have made participation more convenient, allowing people to bid on gold items from their homes.
Procedure for gold auction
The Gold Auction Process includes selling the gold jewellery pledged by the borrower if the borrowers (or borrowers) do not pay back the loan. This is described above under "Events of Default." If someone does not pay, Bajaj Finance Limited may start the auction process.
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 will be served on the borrowers at the address as mentioned in the Gold Loan Application Form. Any such subsequent change in address, should be intimated to Bajaj Finance Limited by the borrowers, minimum 15 days before the scheduled repayment due date. The 1st Default Notice is sent after a minimum of 15 days of default from the scheduled repayment date.
In case of shortfall in the margin due to downward or upward fluctuations in the rate of gold 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 the telephone number as provided by the borrower in the Loan Application Form. In addition, 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 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 acknowledgement 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 borrowers fails to repay the dues despite serving above mentioned Notices. In that case, an ‘ Auction Intimation Notice ’ will be served after 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 realise any amounts outstanding under the loan along with incidental expenses that will include all the costs/ expenses (e.g., auction expenses, legal expenses, taxes, etc.) and the shortfall connected therewith. Also, the Auction Intimation Notice explicitly mentions that if the realised 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 Jewellers Association Limited (IBJA). While conducting the auction, Bajaj Finance Limited’s official should endeavour 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 (for example, 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 favour of the highest bidder. * Terms and conditions apply
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 summary of the auction proceedings
- Name of the highest bidder
- Amount realised
- Delivery of the gold jewellery to the respective successful bidder
- The occurrence of the above proceedings shall be recorded and signed by the concerned authorised 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 must 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 favour 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 borrowers, 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 borrowers 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 borrowers are supposed to make good
Frequently asked questions
In the event that you fail to repay your gold loan in full, the gold jewellery that you submitted as collateral will be sold at auction to recover the lender’s costs.
The gold auction process involves the following steps:
- Default/ intimation notices to the borrower
- Pre-auction intimation notice to the borrower
- Advertisement for conducting the auction
- Guidelines to conduct the auction
- Documentation of the event
- Delivery of gold jewellery
- Loan adjustment
- Communication to the borrower
After the auction is completed, the jewellery is delivered to the successful bidder post full payment. Then the proceeds from the sale go towards adjusting the balance loan amount in the borrower’s account. After this, the borrower receives communication from the lender regarding the status of their account.
Any loan that is not repaid on time has the potential to negatively affect your CIBIL Score. By repaying your EMIs regularly and on time, you build a reliable and creditworthy financial history, which has a positive effect on your credit score in turn.
The auction charges on a gold loan includes the following components:
Charge for physical notice – Rs. 40/- (inclusive of applicable taxes) per notice.
Recovery charges – Rs. 500/- (inclusive of applicable taxes).
Advertisement fee – Rs. 200/- (inclusive of applicable taxes).
These charges cover the administrative and operational costs associated with the auction process. It is essential to be aware of these charges to understand the total financial implications in case of auction proceedings on a gold loan.
To find gold auctions, you can look in the newspapers, finance websites, or online auctions. You can also ask at banks, pawn shops, or auction houses. Online sites often list upcoming auctions and details.