After being prohibited on Monday from authorizing and paying out new gold loans, IIFL Finance has stated that it is addressing the concerns brought up by the Reserve Bank of India (RBI).
“There are no governance or ethical issues at play. These are more of operational and procedural issues that will be addressed with all our efforts and sincerity. We are taking immediate and comprehensive steps to address all the concerns,” Nirmal Jain, managing director of the non banking financial company (NBFC), told analysts.
According to the RBI, IIFL Finance violated the rules governing the purity and net weight of gold certification, violated the loan-to-value (LTV) ratio, and exceeded the statutory limit in cash disbursement and collection. The RBI claimed that the company had violated the standard auction procedure and that there was a lack of transparency in the charges made to consumer accounts. The irregularities also seriously and negatively impacted customer interest.
IIFL Finance
Jain reported variations in the purity and net weight of gold because the company's auditors set values more conservatively than branches do. "There has not been a single instance of LTV breach at the time of disbursement at the branch level, based on the branch assessment provided to the customer."
"Our audit team's net weight calculation, which is modified for quality before going to auction, is what caused the breach.Accordingly, if you compute the quality, you will most likely find a breach," he stated, noting that the business is strengthening its procedures to reduce deviations.
Regarding payment and retrieval, Jain stated that the majority of NBFCs permitted cash up to Rs 200,000, but the RBI believes that cash cannot exceed Rs 20,000 crore, citing portions of the Income Tax Act.
"People's interpretations of the IT Act are unclear; there is disagreement... As soon as we are permitted to make new disbursements, we are making sure that we comply with this as well," he stated.
Among the top two NBFCs in India for gold loans is IIFL Finance. At the end of the third quarter of FY24, its portfolio of gold loans stood at Rs 24,692 crore, or 32% of its total loans of Rs 77,444 crore.
The RBI has started a special audit, and after the audit is over, the limits will be reconsidered. The business is permitted to use the standard procedures for collection and recovery to service its current portfolio of gold loans.
Brokerage Motilal Oswal stated in a report that "we believe this is a major negative setback for IIFL as gold loans constitute ~32% of its AUM mix and a large portion of co-lending done by the company was in the gold loan segment."
The report stated, "The company can work with the regulator to rectify its observations in the gold loan portfolio since these are process-related lapses."
Jain stated that the business will keep collecting repayments and that it has sufficient liquidity. IIFL Finance, which employs around 15,000 people and has 2,721 gold loan outlets operating throughout 25 states and Utah, will now be utilized to market other goods.
Additionally, Jain stated, "We will continue to collect money from repayments until the problem is fixed. We do not anticipate any difficulties in the near future, and we have sufficient liquidity covered. We'll attempt to cross-sell additional items from these branches." Tuesday saw a 20% decline in IIFL Finance shares, which were now trading at Rs 478.50 per share.
