IIFL Finance MD Nirmal Jain clarified on Tuesday that the RBI action on the firm’s gold loan business was due to ‘operational issues’ and not governance or ethical problems.
“While the directive from RBI appears a little harsh, would like to express utmost gratitude to the regulator,” Jain told TV channels a day after the RBI debarred the NBFC from sanctioning and disbursing fresh gold loans following “material supervisory concerns”.
IIFL Finance, one of the top two NBFCs in the gold loan business, has a gold loan portfolio of Rs 24,692 crore, which is 32% of its loans, valued at Rs 77,444 crore at the end of the third quarter of FY24.
The RBI said it had instituted a special audit and the restrictions would be reviewed after the completion of the audit. The company is allowed to service its gold loan portfolio through usual collection and recovery processes. The restrictions were imposed under Section 45L(1)(b) of the Reserve Bank of India Act. Jain said the firm is taking corrective action to ensure that “differences” in assessment of gold value between branches, audit teams is minimal.
Jain said the firm will comply with RBI circular, adding that the company has adequate liquidity at group level and will continue to collect money via repayment. The firm will be approaching RBI for an urgent meeting. The regulator reportedly found breaches in the loan-to-value ratio, significant disbursements and collections 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 on customers.
Jain said gold testing is a manual and subjective process. It is done at branches, audit team is generally more conservative, which may differ from how branches look at value,” Jain said, adding that the interactions with the RBI have happened over the last 45 days.
