The Reserve Bank of India has directed IIFL Finance to immediately cease and desist from lending against gold.

However, the banking regulator has allowed the company to service its existing gold loan portfolio through the 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.

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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.

In a statement on Monday, RBI said an inspection of the company was carried out regarding its financial position as of last March.

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.

At the time of auction upon default, RBI found breaches in the Loan-to-Value ratio, significant disbursal and collection of the loan amount in cash far over the statutory limit and non-adherence to the standard auction process besides lack of transparency in charges being levied to customer accounts.

Besides being regulatory violations, these practices also significantly and adversely impact the customers’ interest, said the RBI statement.

Over the last few months, the RBI has been engaging with the company’s senior management and statutory auditors on these deficiencies, and no meaningful corrective action has been taken so far, it said.

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In the overall interest of customers, RBI 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 the RBI may initiate against the company,” it added.

IIFL Finance provides gold loans to salaried, self-employed and MSME customer segments across 2,721 towns and cities across 25 states and four union territories.

IIFL reaffirms commitment to rectify RBI observations

“We re-affirm our commitment to rectify observations of the RBI in gold loan portfolio to comply with RBI findings at the earliest and will continue with our endeavor to provide gold loan services in the overall interest of customers,” said the company in a statement.

The financial impact due to RBI order in monitory terms cannot be ascertained at this point of time, it added.

Shares of IIFL FInance were down 4 per cent at ₹598 on BSE while Sensex closed nearly flat at 73,872 points.