Reserve Bank of India Halts Gold Loan Sanctioning and Disbursement by IIFL Finance

The Reserve Bank of India (RBI) has issued a directive to IIFL Finance, a non-bank financier, ordering the cessation of its gold loan sanctioning and disbursement activities. The move comes in response to what the RBI terms "material supervisory concerns" observed within IIFL Finance's gold loan portfolio.

Regulatory Lapses Unveiled

The regulatory lapses highlighted by the RBI primarily pertain to violations observed during its inspection of IIFL Finance's financial position as of March 31, 2023. Among the notable deviations discovered were discrepancies in the assaying and certification of gold used as collateral for loans and during auctions upon default.

Further Findings

The central bank's investigation uncovered various infractions, including breaches in the maximum allowable loan-to-value ratio and instances where IIFL Finance exceeded permitted cash collections. Moreover, the company was found to have deviated from the standard auction process and exhibited a lack of transparency concerning the fees charged to customers.

Continued Operations Under Restriction

Despite the imposed restrictions, IIFL Finance has been permitted to continue servicing its existing gold loan portfolio through regular collection and recovery procedures. However, the regulator has emphasized that these supervisory measures are subject to review pending the completion of a special audit instituted by the RBI.

RBI's Engagement and Future Outlook

The RBI has been in ongoing discussions with IIFL Finance's senior management and statutory auditors regarding the identified deficiencies. However, the central bank expressed dissatisfaction with the progress of corrective actions thus far, leading to the imposition of business restrictions.

Path Forward

The supervisory restrictions imposed on IIFL Finance will remain in effect until the completion of the RBI's special audit and subsequent rectification of identified shortcomings to the satisfaction of the regulator.

Financial Snapshot

As of December 31, 2023, IIFL Finance's gold loan book amounted to Rs.24,692 crore, constituting nearly 31% of its total portfolio. Despite the regulatory setback, the non-bank lender reported a net profit of Rs.490.4 crore in the three months leading up to December, marking an increase from Rs.378.3 crore reported in the corresponding period the previous year.

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The RBI's intervention underscores the importance of regulatory compliance and transparency within the financial sector, particularly concerning the management of high-value assets such as gold loans.

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