Have achieved full compliance with RBI requirements: IIFL Fin's A K Purwar

All concerns raised by the RBI pertain to operational and process-related matters, AK Purwar said

IIFL Finance, which is facing regulatory restrictions on extending gold loans, could see a 25-30 per cent impact on business in the coming quarters, A K Purwar, chairman and independent director, said in an email interview to Manojit Saha. Edited excerpts:

The Reserve Bank of India (RBI) has highlighted several violations of norms while asking IIFL Finance to halt gold loan sanctions and disbursement. What steps will the board take to address these gaps, and how long will it take to rectify them?

The RBI conducts regular inspections as part of its supervisory role. Recently, it identified some gaps in our gold loan operations. IIFL Finance's gold loan business adhered to industry norms. However, following the RBI circular, our board meticulously reviewed the regulator's observations and committed to full compliance with the suggestions. All concerns raised by the RBI pertain to operational and process-related matters. I'm pleased to share that our management, along with our business, operations, and technology teams, has diligently addressed all the gaps highlighted by the regulator. As of today, we have achieved full compliance with all RBI requirements.

Over a third of IIFL Finance's loan book is towards gold loans. In the event the ban continues for several quarters, how will growth and profitability be impacted?

IIFL Finance's gold loan business encompasses a substantial portfolio spread across 25 states and union territories, serving over 1.9 million active customers. The majority of our customers belong to the unbanked or underbanked segments, including small farmers, labourers, and small business owners. Our gold loans are typically short-term in nature. The recent RBI circular will indeed have a significant impact on our business in the coming quarters, estimated to be around 25-30 per cent.

Over the last few months, the RBI has been engaging with the senior management and the statutory auditors of the company on these deficiencies. However, no meaningful corrective action has been evidenced so far. What reasons contributed to the delay in addressing the deficiencies?

After receipt of the RBI report, our focus was on comprehensively addressing the deficiencies observed and rectifying them in a timely and meaningful manner. The senior management and statutory auditors of our company are highly responsive and committed professionals. They promptly initiated corrective actions upon identifying the deficiencies. Our detailed responses were submitted to RBI within the stipulated timelines.

When do you expect the findings of the special audit to be released, and how soon do you anticipate the ban to be lifted?

The timeline for the findings of the special audit and the lifting of the ban rests with the RBI, and it would be inappropriate for me to comment on that. However, given that the issues are predominantly related to policies and procedures rather than governance or KYC (know your customer), I am optimistic that the ban will be lifted sooner rather than later.

Has there been any interaction between the RBI and IIFL board/management after the regulatory restrictions? If so, what message has the regulator conveyed?

We have already submitted our responses to the RBI observations received on January 23. We have diligently addressed all process gaps highlighted by the RBI and are prepared for the special audit. We remain committed to demonstrating our seriousness and efforts to uphold the highest standards in operations and processes to the regulator.