RBI halts IIFL Finance’s gold loan business

Reserve Bank of India (RBI) has found various significant lapses in IIFL Finance‘s (IFL) Gold Loan business.

It has consequently, directed the Company to cease and desist, with immediate effect, from sanctioning or disbursing gold loans or assigning/ securitising/ selling any of its gold loans.

(The Company can continue to service its existing gold loan portfolio through usual collection and recovery processes)

In it’s press release RBI has highlighted serious deviations including

• 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, etc.

RBI has also mentioned that over the last few months, the RBI has been engaging with the senior management and the statutory auditors of the company on these deficiencies; however, no meaningful corrective action has been evidenced so far.

and hence this stringent action in the interest of the customers.

The supervisory restrictions will be reviewed upon completion of a special audit to be instituted by the RBI and after rectification by the company of the special audit findings and the findings of RBI Inspection, to the satisfaction of RBI.

Above is a significant blow to IFL’s operations, as Gold loan (32% of total loan AUM as at December 31, 2023) comprises a major chunk of the Company’s business.

Besides, RBI’s action may also slow down other businesses (home loan – 33%, loan against property – 10%, microfinance – 15%, digital loan – 5%) as Company may become more cautious and/ or RBI may further decide to closely scrutinise them as well.