IIFL Finance clarified on March 5 that it does not face any governance issues following the Reserve Bank of India’s decision to prohibit the NBFC from sanctioning and disbursing gold loans.
During a conference call with analysts, IIFL Finance stated, “We want to emphasize that there are no governance issues. These are operational matters that we are addressing with utmost sincerity. We are taking immediate and comprehensive measures to resolve this issue. All other business activities, except for gold loans, will continue as usual.”
On March 5, IIFL Finance’s stock on BSE plummeted by 20% after the RBI barred the company from sanctioning or disbursing gold loans immediately, citing certain significant supervisory concerns observed in its gold loan portfolio.
The management of the firm stated, “The measures taken by the RBI may be challenging. We have implemented corrective actions to minimize discrepancies between branches and the audit team. Most of our co-lending partners conduct their own assessments of quality and weight. We have received 135 complaints from the RBI regarding our gold loan customers, which is minimal compared to the size of our business.”
The RBI conducted an inspection of the company with reference to IIFL’s financial position as of March 31, 2023. The central bank noted, “Certain significant supervisory concerns were observed in the company’s gold loan portfolio, including serious deviations in assaying and certifying the purity and net weight of the gold at the time of loan sanctioning and during auction upon default… These practices, in addition to being regulatory violations, also significantly and adversely affect the interests of customers.”
The RBI stated that the supervisory restrictions will be reassessed after the completion of a special audit conducted by the RBI and after the company rectifies the findings of the special audit and the RBI inspection to the satisfaction of the central bank.
IIFL Finance mentioned that it has 15 co-lending partners, with approximately 6-7 partners involved in gold loans, and it has requested an urgent meeting with the RBI on March 5 to request a special audit to address the issues.
“We have implemented corrective measures based on the RBI’s directives regarding gold loans. We will fully comply with regulations and strive to resolve issues promptly. The RBI’s action took us by surprise and occurred sooner than expected,” stated IIFL Finance.
