The RBI found significant discrepancies during its inspection of the company, including issues with assessing and certifying the purity and weight of gold during loan approval and auctioning after defaults, as well as violations of Loan-to-Value ratio (LTV).
On March 4, the Reserve Bank of India (RBI) directed IIFL Finance to halt the approval and disbursement of gold loans immediately due to significant supervisory concerns identified in the company’s gold loan portfolio.
“The Reserve Bank of India, exercising its authority under Section 45L(1)(b) of the Reserve Bank of India Act, 1934, has directed IIFL Finance Ltd. to immediately cease and desist from approving or disbursing gold loans, or transferring/securitizing/selling any of its gold loans,” stated the RBI in a press release.
The RBI cited significant supervisory concerns following an examination of the company’s financial position as of March 31, 2023. These concerns encompass serious deviations in assessing and certifying gold purity and weight during loan approval and auctioning after defaults, breaches in Loan-to-Value ratio (LTV), excessive cash disbursal and collection exceeding statutory limits, among others.
Additionally, the RBI inspection uncovered non-compliance with standard auction procedures and a lack of transparency in customer account charges, among other issues, the central bank noted. “These practices not only constitute regulatory violations but also have a significant and adverse impact on customer interests,” the RBI emphasized.
The RBI further stated that despite engagement with senior management and statutory auditors over the past few months regarding these shortcomings, no meaningful corrective actions have been taken.
“However, no meaningful corrective action has been evidenced so far. This has necessitated the imposition of business restrictions with immediate effect, in the overall interest of customers,” added the RBI.
The company is permitted to continue servicing its existing gold loan portfolio through its standard collection and recovery procedures, as per the RBI.
These supervisory restrictions will be re-evaluated following the completion of a special audit to be conducted by the RBI. The company must rectify the special audit findings and the findings of the RBI Inspection to the satisfaction of the RBI for a review of these restrictions.
“This business restriction is without prejudice to any other Regulatory or Supervisory action that may be initiated by the RBI against the company,” the RBI emphasized.
Gold Loan Portfolio:
- The company’s gold loan portfolio reached Rs 24,692 crore as of December 31, growing by 35 percent year-on-year and 4 percent quarter-on-quarter.
- It extends gold loans across 2,721 towns/cities in 25 states and 4 Union Territories to salaried, self-employed, and MSME customer segments.
- The gold loan portfolio constitutes 32 percent of the total assets under management (AUM) as of the October-December quarter, with a portfolio yield of 19 percent.
- In the October-December quarter, the gross non-performing assets (NPA) ratio for gold loans stood at 0.80 percent as of December 31, 2023.
- The company’s net profit in the October-December quarter increased by 30 percent year-on-year to Rs 490.4 crore.
Shares of IIFL Finance closed at Rs 598, marking a 4 percent decline on the BSE on March 4, while the benchmark equity index Sensex concluded nearly flat at 73,872.29 points.