IIFL Finance to reorient its gold loan business

Global consultancy firm PwC has been engaged by the NBFC to handhold the transition

Nearly two months after lifting the ban on gold loan business by the Reserve Bank of India, IIFL Finance is said to be working on a new model for this business. According to highly placed sources aware of the matter, the non-banking financial company (NBFC) is working on converting its gold loan business from a pure retail product to a SME-lending oriented product.

The move is done to ensure that some of the business risks faced by gold loan business in its earlier avatar can be mitigated and the robustness of the business can be increased. Global consultancy firm PwC has been engaged by the NBFC to handhold the transition and once the blueprint for the revised business model has been firmed up the management is expected to take it to the board.

An email sent to IIFL Finance seeking confirmation on the matter remained unanswered till publishing the article.

Rationale behind the move

In March 2024, the Reserve Bank of India had imposed curbs in IIFL’s gold loan business owing to certain critical irregularities. Though the ban was subsequently lifted on September 19, it hasn’t been a smooth sail for the company to get back on its feel. The loan book which shrunk from Rs 24,694 crore as on December FY24 quarter to Rs 10,797 crore in Q2FY25 (down 56 percent during this period) is said to be taking time to regain momentum.

Meanwhile, as gold loan is a cost-intensive business, the management is in process of rehauling its business for optimisation of resources. “By realigning the business from a pure-retail loan model to SME-focused product, ticket size of loan can be increased and this will help in better cost management for the lender,” said another source privy to the development.

IIFL Finance is said to be targeting Rs 1 lakh–Rs 4 lakh ticket size loans in the SME gold loan business, as against loans of less than Rs 1 lakh ticket sizes. “Field and branch staff are in the process of being retrained to handle this business,” said the person quoted above.

IIFL Finance is in the process of shortlisting a new CEO to head this business vertical.

The move may also entail rationalisation or closure of branches where the workforce strength hasn’t fully returned after the ban was lifted two months ago.

Right now, the business model is still in a blueprint phase and would be taken to the board for approvals in a few weeks. “If all goes well, the secured SME lending business, which would compliment the lenders loan against property business, should go live by April 1, 2025,” said another source.