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Business News/ Companies / News/  RBI bars IIFL Finance from sanctioning, disbursing new gold loans
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RBI bars IIFL Finance from sanctioning, disbursing new gold loans

The company can continue to service its existing gold loan portfolio through the usual collection and recovery processes

As of 31 December 2023, IIFL Finance's gold loan book was worth ₹24,692 crore, making up nearly 31% of its total portfolio. (Photo: iStock)Premium
As of 31 December 2023, IIFL Finance's gold loan book was worth 24,692 crore, making up nearly 31% of its total portfolio. (Photo: iStock)

Mumbai: The Reserve Bank of India (RBI) on Monday asked IIFL Finance to stop the sanctioning and disbursement of gold loans, citing "material supervisory concerns" observed in the non-bank financier's gold loan portfolio.

The central bank said the lapses, which comprised regulatory violations, adversely impact the interest of the customers. The RBI had carried out an inspection of the company regarding its financial position as on 31 March 2023.

During the inspection, RBI found "serious deviations" in the assaying and certification of gold used as collateral for loans and during auctions upon default. 

In a statement, the central bank noted violations in the maximum allowed loan-to-value ratio and found that IIFL Finance exceeded permitted cash collections, failed to adhere to the standard auction process, and lacked transparency in the fees charged by the company.

In a small relief, the company can continue to service its existing gold loan portfolio through usual collection and recovery processes, the regulator said.

RBI has been engaging with the senior management and statutory auditors of the company on these deficiencies over the last few months. "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," as per the statement.

"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," it added.

As of 31 December 2023, IIFL Finance's gold loan book was worth 24,692 crore, making up nearly 31% of its total portfolio. The non-bank lender reported a net profit of 490.4 crore in the three months to December, up from 378.3 a year ago.

"Prima facie there were no signs of any concerns pertaining to non-compliance. So this kind of RBI scrutny is coming as a shocker and will have a substantial impact on IIFL's business. Shares of the NBFC will take a hit," said Shweta Daptardar, banking analst, Elara Capital.

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Published: 04 Mar 2024, 05:57 PM IST
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