The Reserve Bank of India has directed IIFL Finance to cease and desist from lending against gold with immediate effect.
However, the banking regulator has allowed the company to service its existing gold loan portfolio through usual collection and recovery processes.
The gold loan asset under management of the company has grown 35 per cent year-on-year to ₹24,692 crore and 4 per cent quarter-on-quarter. Gold loan portfolio accounts for 32 per cent of the total assets under management in the December quarter.
Of the total gross non-performing assets, the gold loan ratio stood at 0.80 per cent as of December-end. It registered a 30 per cent increase in net profit at ₹490 crore.
IIFL Finance, one of the largest NBFCs, has now been directed not to sanction or disburse gold loans besides desist from securitising or selling any of its gold loans.
RBI, in a statement on Monday, said an inspection of the company was carried out with reference to its financial position as of last March-end.
Certain material supervisory concerns were observed in the gold loan portfolio of the company, including serious deviations in assaying and certifying purity and net weight of the gold at the time of sanction of loans, it said.
Regulatory violations
At the time of auction upon default, RBI found breaches in Loan-to-Value ratio, significant disbursal and collection of loan amount in cash far in excess of the statutory limit and non-adherence to the standard auction process besides 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, said the RBI statement.
Over the last few months, the RBI has been engaging with the senior management and the statutory auditors of the company on these deficiencies and no meaningful corrective action has been taken so far, it said.
In the overall interest of customers, the central bank has imposed business restrictions with immediate effect.
The restrictions imposed will be reviewed upon completion of a special audit to be instituted by the RBI and after rectification of adverse findings by the company, said the regulator.
“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 provides gold loan to salaried, self-employed and MSME customer segments across 2,721 towns and cities across 25 States and 4 Union Territories.
Shares of IIFL FInance were down 4 per cent at ₹598, on the BSE.