Pawned jewellery, the poor man’s asset, needs more protection from ‘bank’ snatchers
When all other banks were not willing to touch pawning service, even by a bargepole, the People’s Bank, a state-owned bank pioneered this service right from its inception in 1961.
It was mooted more as an antidote to the usurious interest, foreclosing, confiscation after one year and other malpractices found in abundance in the practices of the pawnbrokers. Licensed pawnbrokers were few and far between but those in the informal sector were found in almost every household. Pawning was considered a cottage industry indulged by those with a little money to spare, ranging from petty public servants, mercantile employees, practising professionals and moneyed men and women in the higher rungs.
People’s Bank enjoyed certain exemptions not available for the licensed pawnbrokers. This service turned out to be a money spinner and even the mainstay for certain branches.
Though pawning continued in the informal or unorganised sector the service in the bank checked the interest aspect and to a certain extent the appropriation at the end of one year. The pledge becoming the property of the pawnbroker made the people to turn more and more to the bank. The definite advantage the informal sector had was the informality in the transactions and the advance was elastic enough to accommodate their needs even if the jewellery may not serve as full cover for the advance.
This has been got over by the bank by basing the valuation on the Central Bank valuation but advanced the full value. Commercial banks have gone one step further and are basing it on the volatile market price.
Though there were certain malpractices they were few and far between. Sometimes the amount advanced was in excess of bank valuation but wide enough to recoup in case of forced sale or auction.
One of the most commendable features was the interest charged though judging by the pledge tendered and the bank’s yardstick of interest is in relation to the pledge tendered. Unsecured advances attract the highest rate e.g. Temporary Overdraft (TOD). This goes on and cash backed or those against the borrowers’ deposits were the lowest. If gilt-edged security attracts a low rate of interest gold (22 carat) should be among the lower rate. But it is not so. The banks justify the higher rate by the cost incurred by way of insurance, risk involved, and forfeiture of stolen articles, storage space and other attendant considerations. The continued persistence of the informal sector could be attributed to the quantum of advance, interest factor and the informality in the transactions.
Pawning is now a popular service offered by all the banks. It is no longer shied away. Banks have to relate the interest levied to the value of the security pledged. There has been progressive reduction but it could be another tool in its inroad into the informal sector.
One of the notable features of the pawning service is the belief and conviction by the pawners that when they fail to redeem their jewellery, it will be disposed of at a public auction after giving them due notice and proceeds will be utilised to recover the advance, interest due and expenses incurred in the public auction and the balance will be returned to them. The balance will be a substantial amount for the pawning is based on Central Bank valuation but the auction is based on the prevailing market price which is much higher than the amount taken for pawning. Not only that the bank’s dues cannot exhaust the realised amount for it consists of the amount advanced, interest for a period less than two years and the expenses, shared among all the auctioned items therefore a small portion. Bidding based on the market price will leave sufficient balance to be handed over to the pawner.
This was the situation until recently when the bidding public was householders and those who wish to have readymade jewellery without incurring the additional cost like workmanship and wastage additions. The embellishing stones were another attraction.
Is this happening now? Anecdotal evidence appears to point towards a situation of organized underbidding by jewellery and gold dealers and those with inside information of the articles kept for part safe-custody where the value is far in excess of the pawner’s obligations the bank. If such articles are snatched by the aided and guided bidders it may be a ransom for them but a critical and crushing loss to the pawner.
The auction supervisors (who are supposed to hold the scales even) from the controlling offices should cast a critical eye on the bidding process and on any attempts to have an undue advantage of getting a fortune for a song. The officer has every right to withdraw the targeted article and may be a letter to the defaulted pawner may save him from unforeseen heavy losses.
The ineffective auction stems from certain undesirable practices brought in by the gold merchants who crowd out the genuine bidders mostly householders. This unfortunate phenomenon could be prevented only if the staff and the supervisor takes a genuine interest to safeguard the jewellery of the hapless defaulter, who pawned when he/she was almost desperate and could not redeem when his situation has gone from bad to worse. This is the person whom the pioneer bankers have always sought to protect not only from the usurious pawnbrokers but also the vultures poised to snatch away valuable jewellery for a song.
There is another phenomenon that should be observed. The jewellery shops and big time pawnbrokers pawn their stock in trade or those pawned by their customers with the bank. They imitate the banking practice of shifting securities to their banker. This has created problems to branches which failed to follow instructions as to the items to be accepted. The branch gets saddled with worthless items when care is not taken to check every item when accepting their bulk pawning. It is prudent to treat such transactions under some other category of advances (like gold loans).
Can we expect the staff to rise to the occasion and help the unfortunate non-redeemers and promote the forward march for the banks to justify their role in the development from class banking to mass banking?
(The writer is a retired banker who lives at “Sivan Lodge,” Urumpirai, Jaffna)