Material supervisory concerns: RBI asks IIFL Finance to stop giving fresh gold loans with immediate effect

Material supervisory concerns RBI asks IIFL Finance to stop giving fresh gold loans with immediate effect

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The company inspection found big problems in checking how pure the gold was and measuring its weight accurately when giving out loans and when auctioning it off if people couldn’t repay. There were also issues with not following the Loan-to-Value ratio properly, according to the RBI.

Reserve Bank of India Halts Gold Loan Operations at IIFL Finance: Supervisory Concerns Raised

On March 4, the Reserve Bank of India (RB) told IIFL Finance to immediately stop giving out gold loans because they noticed some important issues in the company’s gold loan portfolio.

Today, the Reserve Bank of India used its authority from the Reserve Bank of India Act, 1934, to tell IIFL Finance Ltd. to stop giving out gold loans or selling any of its gold loans, starting immediately. This was mentioned in a press release by the RBI.

IIFL Finance clarification about what the RBI did

We promise to fix any issues the RBI found in our gold loan business quickly and will keep offering gold loan services for our customers’ benefit.

Material supervisory concerns

The central bank inspected the company’s finances as of March 31, 2023. They found some serious issues with how the company handles gold loans. These issues include problems with checking the purity and weight of gold when loans are given and when they’re auctioned off if someone can’t pay back the loan. There were also problems with how much money was loaned out compared to the value of the gold, and with handling too much cash for loans, which goes beyond the legal limit. The RBI also found that the company wasn’t following the right process for auctions and wasn’t clear about the fees it charged customers. These actions not only break the rules but also harm the customers’ interests.

RBI reports that management hasn’t taken any significant steps to address the issue

The RBI has been talking with the top management and auditors of the company about some problems. Despite this, no significant improvements have been seen. So, the RBI is placing immediate restrictions on the company’s operations to protect customers’ interests. However, the company can still manage its current gold loan business as usual.

These restrictions will stay until the RBI completes a special audit and the company fixes the issues found in both the special audit and the RBI’s inspection to the RBI’s satisfaction. Additionally, the RBI might take further regulatory actions against the company.

Gold loan portfolio

  • In the October-December quarter, the company’s gold loan portfolio increased to Rs 24,692 crore by December 31, growing 35 percent from the previous year and 4 percent from the previous quarter.
  • The company offers gold loans in 2,721 towns/cities across 25 states and 4 Union Territories, catering to salaried, self-employed, and MSME customers.
  • The gold loan portfolio represents 32 percent of the company’s total assets under management (AUM) in the October-December quarter, with a portfolio yield of 19 percent.
  • As of December 31, 2023, the gold loans’ ratio of the company’s gross non-performing assets (NPA) stood at 0.80 percent in the October-December quarter.
  • In the October-December quarter, the company’s net profit increased by 30 percent from the previous year to Rs 490.4 crore.
  • On March 4, shares of IIFL Finance closed at Rs 598, down 4 percent, on the BSE, while the benchmark equity index Sensex closed nearly unchanged at 73,872.29 points.

 

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