RBI orders immediate ban on IIFL Finance from sanctioning, disbursing gold loans
RBI directs IIFL Finance to cease and desist from sanctioning or disbursing gold loans.
The Reserve Bank of India has imposed an immediate ban on IIFL Finance from approving or disbursing gold loans due to significant supervisory concerns identified in its gold loan portfolio.
Despite this restriction, IIFL Finance is permitted to manage its existing gold loan portfolio using standard collection and recovery procedures, according to the RBI's statement on Monday.
"The RBI has today...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," it said.
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Why did RBI take stern action against IIFL Finance?
The directive follows an inspection of the company's financial position as of March 31, revealing significant supervisory concerns in its gold loan portfolio, said RBI.
• Material supervisory concerns were identified in the gold loan portfolio, including serious deviations in assaying and certifying purity and net weight of gold during loan sanction and auction upon default.
• Breaches in Loan-to-Value ratio were noted by the central bank.
• RBI said significant cash disbursal and collection exceeding statutory limits were observed.
• Non-adherence to the standard auction process
• Lack of transparency in charges to customer accounts
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These practices not only constitute regulatory violations but also have a significant and adverse impact on customer interests, the central bank said.
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What next for IIFL Finance?
Over the past few months, RBI has actively engaged with the senior management and statutory auditors of IIFL Finance, addressing identified deficiencies in its gold loan portfolio, it saiud in the statement.
Despite these ongoing discussions, “no meaningful corrective action has been evidenced so far”, it added.
Consequently, in the overall interest of customers, the RBI has taken the necessary steps to impose immediate business restrictions, it added.
The RBI added that supervisory restrictions will undergo a review upon the completion of a special audit initiated by the RBI and after the company rectifies the special audit findings and the findings of the RBI inspection to the satisfaction of the central bank.