IIFL Finance's lending partners mull options to grow gold loan book

IIFL Finance’s co-lending partner banks for gold loans are reviewing the arrangements and exploring various options, including inorganic routes, to grow the gold loan book.

This follows the Reserve Bank of India’s (RBI’s) restrictions on non-banking financial companies (NBFCs) from engaging in gold loan business.

The RBI on Monday debarred IIFL Finance from sanctioning and disbursing fresh gold loans with immediate effect, citing “material supervisory concerns” to safeguard the interests of customers.

Some of its co-lending partners for gold loans include Canara Bank, DCB Bank, and DBS Bank.

IIFL Finance, among the top two NBFCs in the gold loan business, possesses a gold loan portfolio of Rs 24,692 crore, constituting 32 per cent of its loans, valued at Rs 77,444 crore at the end of the third quarter of 2023-24.

The co-lending pay out under the gold loan product was Rs 4,123 crore (37.2 per cent of the total co-lending portfolio) as of December 31, 2023.

The share of co-lending in the gold loan business was 24.3 per cent of assets under management as of December 2023.

A senior official with Canara Bank said that the present outstanding is nil in terms of gold loans in this arrangement. The review of the tie-up is underway.

Another lender, DCB Bank, mentioned that the gold loan co-lending arrangement with IIFL Finance has been in existence since August 2021.

As of now, the portfolio’s performance has been satisfactory.

“We have a due diligence process to give us reasonable assurance on the co-lending portfolio,” DCB Bank said in a filing with BSE.

In addition, responding to Business Standard’s query, DCB Bank mentioned that RBI action on IIFL Finance is expected to have some impact on near-term volumes, depending on how long it takes for them to restart. Fortunately, the bank has a few co-lending alliances.

IIFL Finance hosted an investor conference call on March 5 to clarify the issues raised by the RBI regarding the company’s gold loan business.

While the RBI has not raised any questions on know-your-customer, governance, or co-lending, the co-lending operation is affected because the regulator has barred IIFL Finance from issuing any fresh gold loans.

IIFL Finance has already adhered to all and has communicated the same to RBI, according to IIFL sources.

Domestic brokerage Motilal Oswal, in a research note after an analyst call, said IIFL will have to work with customers and co-lending partners to prevent any damage to its gold loan brand and trust built over the last many years.

Another partner for gold loans, DBS Bank India, a unit of Singapore-based DBS Bank, said it has a co-lending relationship for gold loans with IIFL. However, consequent to the latest regulatory restrictions preventing IIFL from booking new loans, it will not originate any incremental new business under the co-lending arrangement.

“Our primary focus remains on our organic gold loans, which have been the cornerstone of our consumer lending business, and we will continue to grow this part of our business,” a spokesperson for DBS Bank India said.