RBI completes special audit of IIFL Finance to address concerns identified in gold loan portfolio

IIFL Finance Ltd announced that the Reserve Bank of India (RBI) has concluded its special audit of the company, which was initiated in response to significant concerns identified in its gold loan portfolio, according to news agency ANI. The RBI imposed supervisory restrictions on the non-banking financial company (NBFC) on March 4, 2024 that followed an earlier inspection of the IIFL's financial position conducted on March 31, 2023.

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The central bank's initial inspection revealed several irregularities in IIFL's gold loan operations, according to the report. Some of these included cash disbursals and collections exceeding statutory limits, lack of transparency in customer charges, deviations in assaying and certifying gold purity and weight, and breaches in the Loan-to-Value (LTV) ratio.

These findings prompted the RBI to enforce restrictions, mandating IIFL to cease the sanctioning or disbursing of new gold loans and the assignment, securitization, or sale of existing gold loans. However, IIFL was permitted to continue servicing its existing gold loan portfolio, including collections and recoveries, while maintaining other business operations, according to ANI.

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To reduce its risks, the company has raised ₹1271.3 crore of capital through rights issues, it said in the statement. In addition, it has secured ₹500 crore through non-convertible debentures (NCDs) from long-term investors. 

It also has implemented cost control measures such as the reduction of major discretionary expenditures, as per the company. "These actions ensure that the company's projected cash flows over the next three years will meet its financial obligations, maintaining robust capital adequacy," the company said.

"The regulatory action imposing an embargo on fresh gold loans has significantly impacted our business in the last quarter and continues to do so in the current quarter. We have used this opportunity to enhance our compliance, controls, and operations. The special audit has been completed, and we now await the RBI's review and expect positive action soon. The business environment remains healthy, and we are optimistic about the outlook for all our other business segments,'' said Nirmal Jain, Founder, of IIFL Finance Ltd.