The Reserve Bank on Monday barred IIFL Finance Ltd from disbursing gold loans, with immediate effect following multiple supervisory concerns, including serious deviations in assaying and certifying the purity of the yellow metal.
A leading financial services provider, IIFL Finance offers a range of loans and mortgages.
The latest directions from the Reserve Bank of India (RBI) pertain to only the gold loan business.
In a statement, the RBI said it has directed IIFL Finance Ltd "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, however, continue to service its existing gold loan portfolio through the usual collection and recovery processes, it added.
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 the central bank, it added.
Giving details, the central bank said an inspection of the company was carried out by it with reference to its financial position as of March 31, 2023.
Certain material supervisory concerns were observed in the gold loan portfolio of the company.
The concerns include 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 the 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.
"These practices, apart from being regulatory violations, also significantly and adversely impact the interest of the customers," the RBI said.
The central bank said it was engaged with senior management and the statutory auditors of the company on the deficiencies over the last few months, 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 business restriction is without prejudice to any other Regulatory or Supervisory action that may be initiated by the RBI against the company, it added.
IIFL Finance is one of the leading players in the financial services space in India.
Together with its subsidiaries – IIFL Home Finance, IIFL Samasta Finance Limited and IIFL Open Fintech, it provides a diverse range of loans and mortgages.
These include home loans, gold loans, business loans including loans against property and medium & small enterprise financing, microfinance, developer and construction finance and capital market finance, catering to retail and corporate clients.
The company has over 2,600 branches across more than 500 cities.
