Key reasons why RBI barred IIFL Finance from disbursing gold loans
Upstox
2 min read • Updated: March 4, 2024, 8:00 PM
Summary
Shares of IIFL Finance closed at ₹598, down 3.94%, on National Stock Exchange (NSE) on Monday.
The Reserve Bank of India (RBI) has asked IIFL Finance Ltd to stop sanctioning and disbursing gold loans with immediate effect, citing material supervisory concerns.
The RBI inspected the company's financial position as of March 31, 2023, and found several concerns.
Why did the RBI bar IIFL Finance from disbursing gold loans?
The regulator observed certain material supervisory concerns in the gold loan portfolio of the company, including the following:
- Serious deviations were found in the assay and certification of the purity and net weight of gold during loan sanction and auction upon default
- Breaches in loan-to-value ratio
- The disbursal and collection of loan amounts in cash exceed the statutory limit significantly
- Non-adherence to the standard auction process
- Lack of transparency in charges being imposed on customer accounts.
Besides being regulatory violations, RBI said these practices also significantly and adversely impact the customers' interest. ALSO READ: Stop disbursing gold loans with immediate effect: RBI to IIFL Finance Ltd
"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. This has necessitated the imposition of business restrictions with immediate effect, in the overall interest of customers," the central bank said.
The company can, however, continue its existing gold loan portfolio through the usual collection and recovery processes.
"These 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," the regulator said in a statement.
Shares of IIFL Finance closed at ₹598, down 3.94%, on National Stock Exchange (NSE) on Monday, although the RBI directive was released after market hours.