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MUMBAI: RBI on Monday ordered IIFL Finance to “cease and desist” from sanctioning or disbursing gold loans with immediate effect citing multiple “regulatory violations“.
The drastic action comes on the back of RBI finding irregularities during supervision, where the company appeared to be granting more loans than what the security permitted. This was likely to be enabled by deviations in assaying and certifying the purity and net weight of the gold at the time of loan sanction and auction.RBI also prohibited the company from selling its gold loan portfolio by way of assignment, securitisation or outright sale to other lenders.
The company had also breached the maximum loan-to-value ratio permitted by RBI. The supervision showed disbursal and collection of loan amounts in cash over the statutory limit and a lack of transparency in charges being levied to customer accounts. “These practices, apart from being regulatory violations, also significantly and adversely impact the interest of the customers,” RBI said.
Over the last few months, RBI has been engaging with IIFL Finance’s senior management and the company’s statutory auditors regarding these deficiencies. However, since no meaningful corrective action had been evidenced, the central bank decided to go ahead with the imposition of business restrictions.
RBI said the restrictions did not preclude any additional regulatory or supervisory action. “These supervisory restrictions will be reviewed upon completion of a special audit to be instituted by RBI and after rectification by the company of the special audit findings and the findings of RBI inspection, to the satisfaction of RBI,” the regulator said.
According to IIFL’s investor presentation, as of Dec 2023, the company had a gold loan portfolio of Rs 24,692 crore, registering a year-on-year increase of 35%. The company’s gold loan business accounted for 32% of its loan book. While digital loans and microfinance loans grew faster, their share in the portfolio was much smaller at 5% and 16%, respectively.
“RBI has directed that the company can continue to service its existing gold loan portfolio through usual collection and recovery processes. We re-affirm our commitment to rectify observations of RBI in 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,” the company said in a statement.
The drastic action comes on the back of RBI finding irregularities during supervision, where the company appeared to be granting more loans than what the security permitted. This was likely to be enabled by deviations in assaying and certifying the purity and net weight of the gold at the time of loan sanction and auction.RBI also prohibited the company from selling its gold loan portfolio by way of assignment, securitisation or outright sale to other lenders.
The company had also breached the maximum loan-to-value ratio permitted by RBI. The supervision showed disbursal and collection of loan amounts in cash over the statutory limit and a lack of transparency in charges being levied to customer accounts. “These practices, apart from being regulatory violations, also significantly and adversely impact the interest of the customers,” RBI said.
Over the last few months, RBI has been engaging with IIFL Finance’s senior management and the company’s statutory auditors regarding these deficiencies. However, since no meaningful corrective action had been evidenced, the central bank decided to go ahead with the imposition of business restrictions.
RBI said the restrictions did not preclude any additional regulatory or supervisory action. “These supervisory restrictions will be reviewed upon completion of a special audit to be instituted by RBI and after rectification by the company of the special audit findings and the findings of RBI inspection, to the satisfaction of RBI,” the regulator said.
According to IIFL’s investor presentation, as of Dec 2023, the company had a gold loan portfolio of Rs 24,692 crore, registering a year-on-year increase of 35%. The company’s gold loan business accounted for 32% of its loan book. While digital loans and microfinance loans grew faster, their share in the portfolio was much smaller at 5% and 16%, respectively.
“RBI has directed that the company can continue to service its existing gold loan portfolio through usual collection and recovery processes. We re-affirm our commitment to rectify observations of RBI in 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,” the company said in a statement.
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