Nirmal Jain, the CEO of IIFL Finance, has expressed his opinion that the Reserve Bank of India’s recent actions on gold loans are slightly severe.
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”Nirmal Jain of IIFL Finance Finds RBI’s Action on Gold Loans Slightly Severe” know the full details
On March 4, the Reserve Bank of India (RBI) observed some significant supervisory issues in the company’s gold loan portfolio and requested that IIFL Finance cease authorising or disbursing gold loans immediately.
The Reserve Bank of India has issued a press release stating that it has exercised its authority under Section 45L(1)(b) of the Reserve Bank of India Act, 1934, to direct IIFL Finance Ltd. to immediately stop authorizing or disbursing gold loans. The bank has also prohibited the company from assigning, securitizing, or selling any of its gold loans.
What is IIFL’s comment on RBI’s action?
“We reiterate our commitment to rectify the observations made by the RBI about our gold loan portfolio. We will comply with the RBI’s findings at the earliest and continue our efforts to provide gold loan services in the best interest of our customers.”
Let’s see what action RBI has taken on IIFL
The central bank (RBI)Â has explained its decision, stating that the gold loan portfolio of the company in question raised some material supervisory concerns. These concerns were discovered during an assessment conducted by the RBI based on the financial status of the company as of March 31, 2023.
The Reserve Bank of India (RBI) has identified several serious irregularities in the process of sanctioning loans and auctioning gold upon default. These include deviations in assaying and certifying the purity and net weight of gold, breaches in the Loan-to-Value ratio (LTV), and significant disbursal and collection of loan amounts in cash, which exceeds the statutory limit.
The RBI inspection discovered that there was a failure to follow the standard auction process and a lack of transparency in charges being imposed on customer accounts. The central bank has also highlighted that these practices are regulatory violations and lead to significant adverse effects on the interests of the customers.
See The RBI’s Press release on IIFL – Click Here
The Reserve Bank of India said IIFL’s management has not taken any corrective action
According to the central bank, the RBI has been working with the company’s senior management and statutory auditors to address these issues over the past few months.
However, no effective corrective measures have been taken yet. Consequently, the RBI has imposed immediate business restrictions in the best interest of its customers.
The RBI stated that the company can continue to service its current gold loan portfolio via regular collection and recovery processes.
The RBI has stated that it will conduct a special audit to review the supervisory restrictions placed on the company. Once the special audit and the RBI inspection are completed, the company must rectify any findings to the satisfaction of the RBI. Only then will the supervisory restrictions be lifted.
RBI said, ”This business restriction is without prejudice to any other Regulatory or Supervisory action, that may be initiated by the RBI against the company.”
Effect on Gold Loan Portfolio Of IIFL
The company’s gold loan portfolio grew to Rs 24,692 crore as of December 31, during the October-December quarter.
This marks a 35% YoY growth and a 4% QoQ growth. The company offers gold loans in 2,721 towns/cities across 25 states and 4 Union Territories, serving salaried, self-employed, and MSME customers.
In Q4, the company’s gold loan portfolio accounted for 32% of total AUM with a portfolio yield of 19%, according to the investor presentation.
As of December 31, 2023, the gross non-performing assets (NPA) ratio for gold loans was 0.80% of the total NPA ratio.
The company’s net profit increased to Rs 490.4 crore during the October-December quarter, representing a 30% growth from the previous year. On March 4, the shares of IIFL Finance closed at Rs 598, down by 4%, on the BSE. Meanwhile, the benchmark equity index Sensex closed nearly flat at 73,872.29 points.
FAQs Regarding RBI’s Action on IIFL Finance’s Gold LoansÂ
1. What action did the RBI take against IIFL Finance regarding its gold loan portfolio?
- The RBI directed IIFL Finance to immediately stop authorizing or disbursing gold loans and prohibited the company from assigning, securitizing, or selling any of its gold loans.
2. What were the reasons behind RBI’s action?
- The RBI observed significant supervisory issues in IIFL Finance’s gold loan portfolio, including deviations in assaying and certifying gold purity, breaches in Loan-to-Value ratio, and improper auction processes upon default.
3. How has IIFL Finance responded to RBI’s action?
- IIFL Finance has reiterated its commitment to rectify the observed issues and comply with RBI’s findings at the earliest to ensure the best interests of its customers.
4. What steps has RBI taken to address the situation?
- RBI has imposed immediate business restrictions on IIFL Finance and will conduct a special audit to review the supervisory restrictions. The company must rectify any findings to the satisfaction of RBI before the restrictions are lifted.
5. How will this affect IIFL Finance’s gold loan portfolio?
- The company’s gold loan portfolio grew significantly, but with RBI’s action, it faces business restrictions until corrective measures are taken. The impact on the company’s financial performance remains to be seen.
6. What is the current financial status of IIFL Finance?
- As of December 31, 2023, the company reported growth in its gold loan portfolio and net profit. However, the shares of IIFL Finance closed lower following RBI’s action.
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