RBI Bars IIFL Finance From Disbursing Gold Loans With Immediate Effect

The Reserve Bank of India has directed IIFL Finance Ltd. to cease and desist from disbursing gold loans with immediate effect.

The regulator has asked the company to stop sanctioning any new gold loans. It has also been barred from assigning/securitising/selling any of its gold loans.

However, the RBI has said that the company can continue servicing its existing loans.

The action has been taken as the regulator found material supervisory concerns in IIFL Finance's gold loan portfolio. This was based on an inspection conducted with reference to its financial position as of March 31, 2023.

The RBI found the following:

• There were serious deviations in assaying and certifying the purity and net weight of gold at the time of sanctioning loans.

• The same was also observed at the time of auction upon default.

• Breaches in the loan-to-value ratio were also found.

• The RBI also found non-adherence to the standard auction process and a lack of transparency in the charges being levied on customer accounts.

"These practices, apart from being regulatory violations, also significantly and adversely impact the interests of the customers," the statement from the RBI said.

The central bank asserted that it engaged with senior management and statutory auditors of IIF Finance for several months. However, since no meaningful action was noticed, regulatory action was taken.

"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," RBI said.

Further, a review of supervisory action would only be done upon completion of the special audit by the RBI and after IIFL Finance rectifies, based on the findings of the RBI's inspection.

As of Dec. 31, gold loan AUM accounts for 32% of IIFL Finance's total portfolio. In Q3 FY24, the gold loan portfolio increased 35% year-on-year to Rs 24,692 crore, from the previous Rs 18,284 crore in Q3 FY23.

Sequentially, it rose 4% from the previous Rs 23,690 crore.

The yield on the gold loan portfolio also rose 120 basis points to 19% in Q3. Asset quality in Q3, too, improved, with the gross non-performing asset ratio on the gold loan at 0.8%, down 36 basis points quarter-on-quarter.

In the same quarter, the disbursals of gold loans stood at Rs 8,984 crore, up 25% year-on-year. Of this, 60.3% disbursed were of Rs 50,000 less in value.