RBI Asks IIFL Finance To Stop Issuing Gold Loans With Immediate Effect Due To Supervisory Concerns

The RBI directed IIFL Finance Ltd to halt all activities related to gold loans, including sanctioning, disbursing, and any form of loan assignment, securitisation, or sale

The RBI indicated that the supervisory restrictions imposed on IIFL Finance will remain in place until the completion of a special audit to be conducted by the central bank.

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The Reserve Bank of India (RBI) on Monday took a decisive action against IIFL Finance, announcing an immediate prohibition on the sanctioning or disbursing of gold loans by the company. This move comes in response to significant supervisory concerns identified in IIFL Finance's gold loan portfolio.

In a statement issued on Monday, the central bank directed IIFL Finance Ltd to halt all activities related to gold loans, including sanctioning, disbursing, and any form of loan assignment, securitisation, or sale.

According to the release, the RBI stated, "Under Section 45L(1)(b) of the Reserve Bank of India Act, 1934, directed IIFL Finance Ltd. (“the company”) 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 usual collection and recovery processes."

The RBI revealed that it conducted an inspection of IIFL Finance, focusing on the company's financial position as of March 31, 2023. During the inspection, substantial supervisory concerns were uncovered, particularly regarding deviations in the assaying and certification of the purity and net weight of gold during loan sanctioning and subsequent auctions in case of defaults.

These deviations not only constitute regulatory violations but also have a significant adverse impact on the interests of customers, the RBI said.

While IIFL Finance is allowed to continue servicing its existing gold loan portfolio through standard collection and recovery procedures, the company's ability to engage in new gold loan activities is suspended indefinitely.

The RBI indicated that the supervisory restrictions imposed on IIFL Finance will remain in place until the completion of a special audit to be conducted by the central bank. The company must rectify the findings of both the special audit and the RBI inspection to the satisfaction of the regulatory authority for the restrictions to be reconsidered.

The RBI's swift and stringent measures underscore its commitment to maintaining the integrity and stability of the financial sector, ensuring compliance with regulations, and safeguarding the interests of customers.