I. Preamble

Muthoot Finance Ltd is ranked the largest Gold Loan Company in the country. Though the company undertakes many allied activities through its branches and subsidiaries of the Muthoot Group, the overarching activity of the Company is Gold Loan business built up over long years. Major part of the security held by the Company is in the form of gold ornaments and in the eventuality of a few of the customers default in repayment, the recourse available to the Company is auctioning off the gold ornaments pledged, after due process. Gold ornaments, more than a collateral security for securing loan, being a personal asset attached with lot of sentimental values, customers always prefer to regain possession of pledged ornaments by redeeming the debt. As a gold loan company we respect the sentimental value attached to gold ornaments and always encourage the customers to redeem the gold ornaments pledged rather than auctioning it for realization of dues. Reserve Bank of India had issued “Guidelines on Fair Practices Code” vide Circular No :DNBS.CC.PDNo:054/03.10.119/ 2015-16 dated July 1, 2015 wherein NBFCs are advised inter alia, to put in place an “Auction Policy”, duly approved by the Board of Directors. The Auction Policy which is presented hereunder, is shaped on the basis of the guidelines contained in the referred Circular and replaces all existing instructions regarding auction of articles pledged/hypothecated for the purpose of recovering dues from customers who fail to repay their liabilities

II. Auction of Gold Jewelry

The term “auction” used in the policy shall mean realization of the security (pledged gold ornaments) created against the loan, in public auction only, including online auction. Gold Loans are sanctioned as Demand Loans against pledge of gold jewelry for meeting short term financial requirements. Gold loans are generally granted for a maximum tenure of 12 months or for any other periods as specified from time to time.

As per the terms of sanction, the loan needed to be closed on or before the due date as per the maximum tenure specified by repaying the principal along with interest due up-to-date and other charges applicable, if any. In case of non-closure of the loan obligation by due date, pledged ornaments are liable to be auctioned for realization of the dues. After complying with the legal formalities, auction is conducted on behalf of the customer and auction proceeds are utilised for closing the gold loan account. Applicable GST is deducted from the sale proceeds. Excess realization if any is refunded to the customer within 30 days of realization of auction proceeds. Borrower is given option to redeem the ornaments pledged till the previous working day of auction date fixed. If required, borrower is also permitted to participate in branch auction process so that the borrower can redeem his ornaments even if it is taken for auction.

However, the Company shall make earnest efforts to avoid the unpleasant act of auction entailing loss of personal gold ornaments having sentimental value to our customers, by sending periodic communications to customers for persuading them to pay interest periodically and release the jewelry by paying the dues before the due date or renew the loan by paying the interest up-to-date and the differential in eligible loan amount as per the then prevailing LTV.

III. Auction conducted in other situations

1. Auction of overdue accounts within 36 months from due date

Auction by Auction Department will be triggered to conduct auction of all gold ornaments which are overdue for closure. Normally no accounts shall remain as NPA in the books of account of the Company for more than 36 months except in the case of pending legal cases.

2. Auction due to depletion in the value of security due to fall in prices etc. (auction before completion of tenure or due to any other reasons or contingencies)

If there is depletion in the value of security on account of fall in gold prices which may result in loss to the Company in case the loan is continued or auction is warranted due to any other reasons or contingencies, demand can be made on the borrower to repay a certain sum of money per gram of gold pledged or to pledge additional gold to make good the shortfall in the value of security as per the prevailing Loan to Value (LTV) or to close the gold loan.

3. Auction of gold ornaments identified as Spurious/ Low Quality or Re-auction in the case of unsuccessful auction.

i. Low quality gold ornaments detected during audit verification anytime subsequent to disbursement of the loan may be taken up for auction even before the due date as per the tenure of the loan, subject to the under mentioned compliances. The said procedures shall also be followed for auction of low quality items detected at the auction centres during the course of an auction or while sorting items for the purpose of lifting for auction after completion of the tenure of the loan.

ii. Such items will be separated and auction notice will be sent to customers intimating them about the low quality nature of the gold and giving them an opportunity to verify and redeem the items by repaying the dues. In case they fail to repay the dues and close the loan, auction proceedings will be initiated after publishing advertisements in newspapers indicating the time and place of auction, thus giving further time to customer to regularize the account and redeem the ornaments.

iii. Before serving the above notice, purity of the gold ornaments shall be re-verified internally through a competent officer/auditor. Melt test (assaying) of a small portion of the pledged gold may also be resorted to for reconfirming purity if required.

iv. The reserve prices for such spurious/low quality ornaments shall be fixed keeping in view the reconfirmed assessed purity and the RBI directions issued from time to time. A realistic reserve price will be fixed as per the purity of the ornaments assessed. Alternatively proportionate net weight of gold ornaments may be adjusted to match the purity of gold to 22 ct.

IV. Exemption of accounts from scheduling/scheduled auction process

Exemption of accounts from scheduling/scheduled auction process is considered on a cases to case basis where:

i. Part payments by the borrower evidencing his/her intention to redeem the gold, subject to consent of the borrower.

ii. Specific request from the customer for postponement from auction.

iii. Legal issues pending like Police case/Court Order.

iv. Considering the sentimental value of pledged gold ornaments being personal assets of the borrower, collateral value of the pledged ornaments, destruction of value of pledged ornaments for the borrower on account of auction etc, even if borrower is not able to pay part dues, the Auction Department , at their discretion, can exempt an account or accounts from auction, at the request of the borrower.

It is quite possible that while exempting accounts from auction and thus giving more time to customers to retrieve the pledged gold ornaments by repaying the loan, Company may end up losing part of the interest dues in the event of subsequent auction due to non-payment by borrower. This is considered as an accepted business practice for the Company in the process of providing another opportunity to the customer for retrieving the pledged gold ornaments.

V. Re-auction/Postponement of auction

Re -auction will be conducted in cases of unsuccessful auctions due to absence of minimum number of bidders for conducting an auction or lack of bids for/above the reserve price fixed. The auctioneer should, in such instances, submit in writing that the minimum number of bidders were not present or no bids were received for the bid price fixed due to low quality of gold or the bidder’s inability to correctly assess the purity.

VI. Part payment

Part payment of Principal/Interest shall be accepted by branches at any point of time up to auction date. Thereafter, part payment can be allowed only after getting specific confirmation from the Auction Dept.

VII. Onitoring level of NPA and auction of accounts.

Auction Department shall closely monitor the Stage 3 Loan accounts (NPA) position of the Company at the end of every month. In case the net Stage 3 Loan accounts (Net NPA) position touches 6% of total advances, Auction Department shall take immediate steps to auction the eligible NPA accounts, despite request from borrower to postpone auction, and ensure containing the Net NPA of the Company within 6% of total advances.

VIII. Auction Intimation notice to customers

Intimation regarding auction will be communicated to the borrower 14 days before auction of gold ornaments showing amount due, date and time of auction, place of auction, last date of payment of dues etc. In the event of postponement of auction, intimation will be again send to the customers.

XI. Interest concession to NPA accounts

Auction Department may consider interest concession in eligible accounts provided the customer is willing to regularise/settle the accounts. Requests for interest concession shall be forwarded to Credit Department through online process. Interest concession in the case of deceased borrowers shall be forwarded to Recovery Department.

X. Auction Expenses

1. Auction expenses charged to auctioned accounts

The following expenses related to auction will be allocated (to be recovered from the auction surplus realised) to the Gold Loan accounts which are auctioned.

(Amounts in Rupees)

Auction expenses (including GST) are allocated to the accounts but actual collection is subject to surplus realisation of auction proceeds.

2. Expenses chargeable to overdue accounts

• Auction advertisement expenses for publishing newspaper advertisement
• Postage incurred for sending auction intimation.

XI. Auction procedure

• Overdue Loan accounts shall be identified and registered notices sent as per the timelines prescribed above. If the borrowers fail to repay the dues within the timelines prescribed, such accounts will be marked for auction.
• Board approved Auctioneers appointed at various centres shall be assigned with the Auction process.
• Registered Auction notice with acknowledgment due shall be served to all such identified borrowers giving 14 days’ notice period in order to ensure that sufficient time and opportunity are given to the customer for redemption and to avoid auction sale.
• Paper publication in a local daily in the vernacular language and in another national daily in English shall be given clearly specifying the place, time and date of auction. It also contains giving time for redemption up to the preceding working day of the proposed auction.
• Surplus if any available in the auction sale proceeds over and above the dues shall be refunded to the respective customers within 30 working days after receipt of the full auction proceeds. A rightful lien will also be retained against such surplus subject to proper notice to the customer in case the borrower has other unsettled liabilities to the Company and surplus shall be refunded to the borrower after adjusting such dues if Steps including legal action for recovery of any shortfall after appropriating the auction proceeds shall also be initiated where ever feasible and after analysing the cost benefits.
• Ornaments in unredeemed accounts listed for auction will be put up for sale in appropriate/convenient lots through a public auction procedure wherein the prospective bidders participating in the auction shall quote their prices over and above the minimum fixed bid price in the open auction in accordance with Fair Practice Code for Bidders participating in the Auction detailing the Terms and Conditions of An auction will be carried out provided minimum 3 bidders are available as participants.
• The auction of unredeemed gold will be conducted in the same branch from where the customer has availed the loan by pledging gold, giving an opportunity to the customer also to participate in the gold auction.

In case of auction at branches, the respective Branch Managers will be authorized by the Board approved auctioneer to conduct the auction on his behalf subject to following conditions.

• Any genuine bidder can participate in branch auction subject to deposit of EMD specified and submission of acceptable documents as ID proof, PAN card copy, GST registration.
• A Customer who is coming to release his gold ornaments during branch auction, will be either permitted to do so after paying the total dues including up-to-date interest and charges or allowed to participate in the auction as a bidder subject to compliance of the terms and conditions for participating in the auction as mentioned above.
• The auction will be conducted through an “Open bidding” process. The final rate quoted by each bidder will be recorded in the bid register. The bidder who has quoted the highest rate (H-1 ) will be declared as the successful bidder and a bid confirmation will be obtained from him, allowing, at the discretion of Head of Auction Department, maximum time up to 14 days to remit the amount and lift the auctioned gold. Head of Auction Department may, at his discretion, allow further extension of time up to a maximum period of 7 more days for remitting the amount. If the bidder fails to remit the amount within the stipulated period, his bid will be treated as cancelled. The Head of Auction Department may, at his discretion, decide to impound part amount or full amount of EMD in such cases.
• If the highest bidder fails to remit the bid amount and lift the auctioned gold within the stipulated time resulting in cancellation of his bid, the Head of Auction Department may, at his discretion, decide to confirm the bid of any one of the other bidders by following the process of seeking bid confirmation from them individually as per the descending order of their bid amount and giving 7 days’ time to each of them to remit the amount and lift the gold. In case the other bidders are not willing to confirm the bid, or fail to remit the amount and lift the gold within the stipulated time limit, the auction process will be declared as cancelled and steps will be initiated for conducting a fresh auction of the gold following all the procedures like sending of notices to the borrowers, publication of notice in the Newspapers etc.

XII. Auction Records maintenance

In case of auctions scheduled at branches, the following records shall be maintained irrespective of whether auctions were conducted or not. Such records should be authenticated by the Branch Manager as authorized representative of the Approved Auctioneer:

• Details of auction participants.
• Minutes detailing the auction proceedings.

In case of sale by auction conducted at branches/auction centers, the following registers/records also have to be maintained in addition to the above

• Bid register indicating the bid rate of all bidders
• Sales Invoice
• Detailed auction record

All the records maintained at the auction center should be authenticated by the Board Approved Auctioneer or his authorized representative who conduct the auction.

In case the auction could not be conducted at the branch on the scheduled auction date due to any reasons like lack of minimum number of bidders etc. then the branch will display in the branch notice board, the address of the centralized location where the next auction will be carried out subsequently with date of subsequent auction and the gold items will be lifted to the centralized location within the same district in which the loan was extended where the same will be sold through public auction. The auction notice and paper advertisement will clearly specify both the locations and the respective dates of auction. Auction will take place on the date specified in the newspaper or on subsequent dates.

XIII. Conduct of auction by on-line mode [e-auction]

Apart from the auctions in the manual mode as described above, auctions shall also be conducted on online platform [e-auction] provided by reputed service providers who are already in this line of activity. A brief description of the online platform is given below;-

• Online auction process shall be resorted to after physical auction at respective branches and conducted branch-wise by complying with all statutory regulations
• Final notices/ newspaper advertisements will be done by our Company as before
• Minimum bid price as prescribed by RBI shall be complied with in online auction also.
• We expect more bidders to participate in auction process.
• All auction related documents can be downloaded from system itself
• Date and time of auction will be announced minimum14 days in advance. In case the auction could not be conducted on the date announced, it will be conducted on subsequent days the details of which will be displayed in the branch concerned and in the website.
• Auction gold will be put up for sale in appropriate/convenient lots
• Auction shall be live on the scheduled date with minimum expected price provided by or Company.

XIV. Fixation of minimum bid price

Minimum bid price for each lot shall be fixed based on the following.

• Prevailing market price of gold based on the rates published by the Indian Bullion and Jewellers Association Ltd
• Total dues to be received in the loan account which includes advance and interest up to the date of auction and other charges levied and recoverable.
• General quality of the gold (In case the ornaments are found to be having purity of less than 22 carat, the company will have the discretion to quote a lesser floor price for the lot or reduce the net weight of ornaments to compensate the purity of gold)

While auctioning the gold the reserve price for the pledged ornaments will not be less than 85% of the previous 30 day average closing price of 22 carat gold as declared by The Indian Bullion and Jewelers Association Ltd (IBJA) in cases of jewelry of lower purity items the floor price will be proportionately reduced.

The bid shall be confirmed in favor of the bidder making the highest bid. In the eventuality of the bidders ganging up or forming a cartel for taking undue advantage etc., the right for cancellation and postponement of the auction, to another date/Centre shall be exercised by the Company.

XV. Refund of EMD

• In case of successful bidders, EMD shall be refunded within 10 days from date of remittance of total bid amount.
• In case of non-successful bidders, EMD shall be refunded within 10 days from date of auction.



XVI. Documents maintained & disclosures

1. At Branches

Record of the auction proceedings authenticated by the Branch Manager, who is authorized by the approved auctioneer to conduct the auction process.

2. At the Auction centers

• Postal Receipts for Registered Auction notices issued to borrowers.
• Postal acknowledgement from borrowers and Auction Notices returned undelivered.
• Copies of the News Paper Auction Publications.
• Details of Auction Participants.
• Details of Auctioned items and Bidders where the details of bid price of all bidders will be recorded and the last bid price of all bidders will be recorded and authenticated by the board approved
• Sales Invoices
• In the annual reports the details of the auctions conducted during the financial year including the number of loan accounts, outstanding amounts, value fetched and whether any of its sister concerns participated in the auction should be disclosed.
• Post auction, customers will be intimated the details such as the price fetched in the auction, total dues adjusted from the proceeds balance amount payable to/by him etc. Wherever refunds are involved the amount will be sent by account payee cheque at the address in the pledge

XVII. Refund of Auction surplus to Customers

On receipt of auction proceeds, auction surplus amount of all the accounts will be transferred to an Escrow Account opened for refund purpose. The auction surplus will be disbursed to respective borrowers within 30 days of receipt of the auction proceeds. Procedure for refund of auction surplus is given below:

• On receipt of auction proceeds, the surplus amount will be directly transferred through NEFT /RTGS to all those customers whose bank accounts are available in CBS.
• In cases where account numbers are not available but mobile numbers are enabled with digital payment methods, we use digital payment platforms such as G Pay /Phone Pay/Paytm etc. Customer credentials will be verified before transferring the amount to their mobile number.
• In case customer is not having a valid bank account / Digital payment methods and customer approaches the branch in person, the Branch will be authorized to refund an amount up to Rs. 5000/- in cash after obtaining prescribed documents/acknowledgements.
• In case the refund amount is more than Rs.5000/-, the Bank account details will be collected from the customer and the amount credited directly to his Bank account. Head of Auction Department is authorized to sanction payments up to Rs.10, 000/- in cash in exceptional cases.
• Surplus amount in auction may also be credited to the customer’s active gold loan accounts with proper intimation to the customer.
• Accounts where surplus realization is pending to be returned to the customer, the refund will be effected through Demand Draft which will be sent to the last known mailing address of the customer by registered post.
• In cases where the surplus is not disbursed after above steps Branch Managers shall get in touch with the customers either telephonically or in person for collecting bank account details of customers.

XVIII. Auction of assets other than Gold

In the event of the Company resorting to auction of any assets other than gold for appropriating the proceeds towards the dues from a borrower, wherever warranted, all the proper legal processes like filing of suit for taking possession through execution of decree and selling it through an auction will be followed.

XIX. Revisions or Deviations in the above Policy

A committee consisting of the following members is authorized to examine cases and permit deviations from the above policy selectively or wholly or for a particular period of time as deemed fit.

Members of the Committee

• Executive Director & Chief Operating Officer
• DGM - Risk & Recovery
• Head of Auction Department
• XX. Review of Auction Policy

The Policy will be reviewed on an Annual Basis.