Mahiyar Rohinton Patel, Pune
India Infoline Finance Limited more commonly known as IIFL has been barred by RBI from offering any more gold loans. RBI has said that there are some supervisory concerns regarding the gold loans business of IIFL. IIFL’s kitty of gold loans exceeds 26,000 crores currently. Despite this restriction, the company has been allowed to continue managing its current holdings in the gold loans business.
The reasons behind this cease and desist directive by the RBI are material supervisory concerns identified in the gold loan portfolio. The concerns specifically are concerning deviations, in assaying and certifying the purity of the metal and actual weight of gold during loan sanction and auction upon non-repayment or conversion into a Non-Performing Asset (NPA)
The RBI has also noticed discrepancies in the loan-to-value ratio of the gold loans issued by IIFL. The RBI stipulates a specific ratio that needs to be maintained by companies about the collateral they hold and the loans they give out, similarly the RBI has also said that cash disbursal and collection norms of the central bank were violated by IIFL.
Also, there has been a lack of transparency from within the NBFC regarding numerous charges it has made to customer accounts. The central bank has pointed out that only is there corporate misgovernance there is a real adverse impact on consumer interests.
The RBI in a statement said that it has actively engaged with the management and the board in regards to the problems it identified with its gold loan portfolio. Despite these interactions “no meaningful corrective actions has been evidenced so far”, it added.
IIFL shares went to a 20% lower circuit, hitting Rs.478.50 on Tuesday morning. The impact of the RBI order will be felt ever more seriously as gold loans make up 32 percent of the assets under management of the company.
Issuing a statement on the situation, IIFL Finance said, “We reaffirm our commitment to rectify observations of the RBI in the 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”.