IIFL Finance shares dive 20% following RBI ban on gold loan disbursement

Following the Reserve Bank of India's decision to prohibit IIFL Finance from issuing gold loans, shares of the financial services provider plummeted 20% to 595 rupees on Tuesday.

IIFL Finance, known for offering a variety of loans and mortgages, faced regulatory action specifically targeting its gold loan business.

The Reserve Bank on Monday barred IIFL Finance Ltd from disbursing gold loans, with immediate effect following multiple supervisory concerns, including serious deviations in assaying and certifying the purity of the yellow metal.

A leading financial services provider, IIFL Finance offers a range of loans and mortgages. The latest directions from the Reserve Bank of India (RBI) pertain to only the gold loan business.

In a statement, the RBI said it has directed IIFL Finance Ltd "to cease and desist, with immediate effect, from sanctioning or disbursing gold loans or assigning/ securitising/ selling any of its gold loans".

The company can, however, continue to service its existing gold loan portfolio through the usual collection and recovery processes, it added.

The supervisory restrictions will be reviewed upon completion of a special audit to be instituted by the RBI and after rectification by the company of the special audit findings and the findings of RBI Inspection to the satisfaction of the central bank, it added.

Giving details, the central bank said an inspection of the company was carried out by it with reference to its financial position as of March 31, 2023.

Certain material supervisory concerns were observed in the gold loan portfolio of the company.

The concerns include serious deviations in assaying and certifying purity and net weight of the gold at the time of sanction of loans and at the time of auction upon default; breaches in Loan-to-Value ratio; significant disbursal and collection of the loan amount in cash far in excess of the statutory limit; non-adherence to the standard auction process; and lack of transparency in charges being levied to customer accounts.

"These practices, apart from being regulatory violations, also significantly and adversely impact the interest of the customers," the RBI said.

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