The Reserve Bank of India (RBI) today asked Mumbai-based financial services company IIFL Finance to stop sanctioning and disbursing gold loans with "immediate effect". The central bank, in its latest statement, has raised material supervisory concerns in IIFL Finance’s gold loan portfolio.

“The Reserve Bank of India has today, in exercise of its powers under Section 45L(1)(b) of the Reserve Bank of India Act, 1934, directed IIFL Finance Ltd. (“the company”) to cease and desist, with immediate effect, from sanctioning or disbursing gold loans or assigning/ securitising/ selling any of its gold loans,” the RBI order passed by Yogesh Daya, chief general manager, says.

The company can, however, continue to service its existing gold loan portfolio through the usual collection and recovery processes.

The RBI says in an inspection of the company, carried out by the RBI with reference to its financial position as on March 31, 2023, it found certain material supervisory concerns in its gold loan portfolio.

These issues included serious “deviations in assaying and certifying purity”, and the “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 in excess of the statutory limit; non-adherence to the standard auction process; and lack of transparency in charges being levied to customer accounts, etc”.

According to the central bank, these practices, apart from being regulatory violations, also “significantly and adversely” impact the interest of the customers.

Notably, 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,” says the central bank, adding that this has necessitated the “imposition of business restrictions with immediate effect, in the overall interest of customers”.

The RBI says these supervisory restrictions will be reviewed upon completion of a special audit to be instituted by it. The RBI will await the company to rectify the special audit findings and its own inspection to its satisfaction before removing restrictions.

“This business restriction is without prejudice to any other Regulatory or Supervisory action, that may be initiated by the RBI against the company,” says the RBI.

The IIFL Finance Ltd stock closed 3.35% or 20.75 points down today at ₹598.10 on BSE. At the current price, the company's m-cap stands at ₹22,816.50. The RBI's action against IIFL Finance comes close on the heels of its recent stringent action against Paytm Payments Bank.

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