RBI Orders IIFL Finance To Stop Approving, Transferring Gold Loans

India’s central bank ordered IIFL Finance Ltd. to stop sanctioning or disbursing gold loans or assigning/securitizing/selling any of its gold loans over certain material supervisory concerns in the company’s gold loan portfolio.

The order is applicable with immediate effect, the Reserve Bank of India (RBI) said in a statement. The Indian non-bank lender can, however, continue to service its existing gold loan portfolio through usual collection and recovery processes, it added.

The action comes after the RBI carried out an inspection of the non-bank lender’s financial position as on 31 March 2023 and found certain material supervisory concerns in the gold loan portfolio of the company.

The central bank said these included:

• Serious deviations in assaying and certifying purity and net weight of the gold at the time of sanction of loans and at the time of auction upon default,

• Breaches in loan-to-value ratio,

• Significant disbursal and collection of loan amount in cash far in excess of the statutory limit,

• Non-adherence to the standard auction process, and

• Lack of transparency in charges being levied to customer accounts.

The RBI said these practices, apart from being regulatory violations, also significantly and adversely impact the interest of the customers.

The central bank said it has been engaging with the senior management and the statutory auditors of the company on these deficiencies over the last few months, but 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,” it added.

These supervisory restrictions will be reviewed upon completion of a special audit to be instituted by the central bank and after rectification by IIFL Finance of the special audit findings and the findings of IRB inspection to its satisfaction, according to the statement.

The central bank said its business restriction is without prejudice to any other regulatory or supervisory action that may be initiated by the RBI against the company.

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