Taking steps to address RBI’s concerns: IIFL Fin after gold loan ban | Business News – Business Standard

“There are no administrative or ethical issues. These are more operational and procedural issues that will be addressed with all our efforts and sincerity. We are taking immediate and comprehensive steps to address all concerns,” Nirmal Jain, managing director of the non-banking financial company (NBFC), told analysts.

The RBI said IIFL Finance had failed to comply with norms for certifying purity and net weight of gold, committed loan-to-value (LTV) ratio violations and cash disbursement and collection exceeded the legal limit. The company had not adhered to the standard auction process and its processes were not transparent in the charges levied on customer accounts, the RBI said, significantly adding to the violations and adversely affecting the interests of customers.

Jain said discrepancies in the purity and net weight of gold are because the company’s accountants are conservative in determining its value compared to industries. “At the time of payout at the branch level, based on the branch’s assessment to the customer, there was not a single instance of LTV violation.”

“Violation is due to the net weighting done by our audit team when it is auctioned which is adjusted for quality. Based on that, if you calculate the quality, you will probably find a breach,” he said, adding that the company is strengthening its systems to minimize deviations.

On disbursement and collection, Jain said most NBFCs allowed cash up to Rs 200,000 while RBI, citing sections of the Income Tax Act, is of the view that cash should not exceed Rs 20,000 crore.

“The interpretation of the IT Act is not clear; people have different views… We will ensure that we comply with this even as soon as we are allowed to make new disbursements,” he said.

IIFL Finance is among India’s top two NBFCs in gold lending. It has a gold loan book of Rs 24,692 crore, which was 32 percent of its total loans of Rs 77,444 crore at the end of the third quarter of FY24.

RBI has instituted a special audit and the restrictions will be reviewed after completion of the audit. The company may service its existing gold loan portfolio through the usual collection and recovery processes.

“We believe this is a major negative headwind for IIFL as gold loans constitute ~32% of the AUM mix and a large portion of the company’s co-lending was in the gold loan segment,” brokerage Motilal Oswal said in a report.

“As these are process-related errors, the company may work with the regulator to rectify its observations regarding the gold loan portfolio,” the report said.

Jain said the company has sufficient liquidity and will continue to collect refunds. IIFL Finance, which has 2,721 dedicated gold loan branches spread across 25 states/UT, and staffed by around 15,000 in-house employees, will now be used to sell other products.

“Until the issue is resolved, we will continue to collect money from repayments. We are sufficiently covered in terms of liquidity and do not see any challenges for the near future. We will also look to cross-sell other products from these verticals,” Jain said.

Shares of IIFL Finance fell 20 percent on Tuesday to lock at Rs 478.50 per share.

First print: March 5, 2024 | 1:57 p.m IST