Stop disbursing gold loans with immediate effect: RBI to IIFL Finance Ltd

The Reserve Bank of India (RBI) on Monday barred IIFL Finance Ltd from sanctioning or disbursing gold loans with every immediate effect over material supervisory concerns.

However, the company can continue its existing gold loan portfolio through the usual collection and recovery processes, the regulator said.

The central bank reviewed the company’s financial position as of March 31, 2023, and made a number of observations.

What material supervisory concerns did RBI find in IIFL Finance’s gold portfolio?

• 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 over the statutory limit
• Non-adherence to the standard auction process
• Lack of transparency in charges being levied on customer accounts

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

The central bank said that it has been engaging with IIFL Finance's senior management and the company's statutory auditors over deficiencies. However, no effective corrective action has been evidenced so far, it added.

"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 Ltd closed at ₹598, down 3.94% or ₹24.55, on Monday.