BENGALURU/MUMBAI (Reuters) -India’s central bank on Monday ordered non-bank finance company IIFL Finance to stop sanctioning, disbursing and selling gold loans with immediate effect, citing “material supervisory concerns” in its gold loan portfolio.
These include “serious deviations” in assessing the gold taken as collateral and breaches in the maximum permitted loan- to-value ratio, the Reserve Bank of India (RBI) said in a statement, citing findings from an inspection carried out with reference to company’s financial position as on March 31, 2023.
The RBI also found that IIFL Finance made significant disbursals and used cash collections more than permitted. There was a lack of transparency in the charges being levied to customer accounts.
The central bank has been engaging with senior management and auditors of the company on these deficiencies over the last few months. However, no meaningful corrective action has been “evidenced so far”, necessitating the imposition of business restrictions “in the overall interest of customers”, the RBI said.
The central bank will review the restrictions on IIFL Finance after completion of a special audit and rectifications by the company, it said.
For now, IIFL can continue to service its existing gold loan portfolio through usual collection and recovery processes, the regulator said.
IIFL Finance did not immediately respond to a Reuters’ request seeking comments.
India’s central bank has over the last few years stepped up oversight of banks and non-bank finance companies to ensure compliance of its norms and protect customer interests.
IIFL Finance’s gold loans under management stood at 246.92 billion rupees (about $3 billion) as on Dec. 31, accounting for 32% of its total assets.
Shares of the company closed 3.4% lower on Monday.
($1 = 82.8800 Indian rupees)
($1 = 82.8940 Indian rupees)
(Reporting by Chris Thomas in Bengaluru and Siddhi Nayak in Mumbai; Editing by Ed Osmond and Mrigank Dhaniwala)
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