IIFL Finance on August 6 reported a sharp fall of around 35 percent in its gold loan book in the April-June quarter after the Reserve Bank of India (RBI) earlier this year asked company to stop disbursing gold loans.
The company’s gold loan book has reduced to Rs 6,265 crore as on June 30, from Rs 9,634 crore as on March 31, as per a press release.
In percentage terms, of the total loan book, gold loans stood at 45 percent as on June 30, as compared to 54 percent as on March 31, which was prior to ban on disbursement.
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The auditors report of the company said gold loan business is a major segment of the parent company, its consolidated operations benefit significantly from other businesses operating in the parent company and its subsidiaries.
The company said to mitigate any risks to the Parent Company's status as a going concern, it has raised Rs 1,271.83 crore through an equity rights issue in May 2024.
Further it added that this action ensures that the parent company's projected cash flows over the next three years will meet its financial obligations, maintaining robust capital adequacy.
“Management is confident in resolving all issues raised by the RBI and has prepared the financial statements on a going concern basis,” the report said.
On March 4, the RBI has asked IIFL Finance to stop sanctioning or disbursing gold loans with immediate effect after observing certain material supervisory concerns in the company's gold loan portfolio.
"The Reserve Bank of India has today, in exercise of its powers under Section 45L(1)(b) of the Reserve Bank of India Act, 1934, directed IIFL Finance Ltd. to cease and desist, with immediate effect, from sanctioning or disbursing gold loans or assigning/ securitising/ selling any of its gold loans," the RBI said in a press release.
Explaining the action, the central bank said an inspection of the company was carried out by the RBI with reference to its financial position as of March 31, 2023 which revealed certain material supervisory concerns were observed in the gold loan portfolio of the company.
These include serious deviations in assaying and certifying purity and net weight of the gold at the time of sanction of loans and at the time of auction upon default, breaches in Loan-to-Value ratio (LTV), significant disbursal and collection of loan amount in cash far in excess of the statutory limit among others, the RBI said.
Further, the RBI's inspection further revealed non-adherence to the standard auction process and lack of transparency in charges being levied to customer accounts, etc, the central bank said. "These practices, apart from being regulatory violations, also significantly and adversely impact the interest of the customers," the RBI said.
The company has reported Rs 23-crore loss in the quarter ended June 30, 2024 as against Rs 151-crore profit in the year-ago period as the NBFC continues to face pressure due to curbs imposed by Reserve Bank of India.
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