The Reserve Bank of India (RB) on March 4 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.
IIFL Finance clarification on RBI' action
"We reaffirm our commitment to rectify observations of the RBI in the gold loan portfolio to comply with RBI findings at the earliest and will continue with our endeavour to provide gold loan services in the overall interest of customers."
Material supervisory concerns
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 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.
No meaningful corrective action from management, says RBI
According to the central bank over the last few months, the RBI has been engaging with the senior management and the statutory auditors of the company on these deficiencies.
"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," the RBI added.
The company can, however, continue to service its existing gold loan portfolio through its usual collection and recovery processes, the RBI said.
These supervisory restrictions will be reviewed upon completion of a special audit to be instituted by the RBI and after rectification by the company of the special audit findings and the findings of RBI Inspection, to the satisfaction of RBI, the RBI added.
"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 added.
Gold loan portfolio
The gold loan portfolio of the company in October-December quarter grew to Rs 24,692 crore as on December 31. It grew 35 percent on-year and 4 percent on-quarter.
The company provides gold loan through 2,721 towns/cities across 25 states and 4 Union Territories to salaried, self-employed and MSME customer segment.
The share of gold loan portfolio of the company is 32 percent of the total assets under management (AUM), in October-December quarter. The portfolio yield stood at 19 percent, as per company's investor presentation.
In October-December quarter, of the total gross non-performing assets (NPA) ratio, gold loans' ratio stood at 0.80 percent as on December 31, 2023.
In October-December quarter , net profit of the company rose 30 percent on-year to Rs 490.4 crore.
Shares of IIFL FInance closed at Rs 598, down 4 per cent, on BSE on March 4 while benchmark equity index Sensex closed nearly flat at 73,872.29 points.
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