 "gold loans")
The Reserve Bank of India (RBI) on Monday debarred IIFL Finance, a non-banking financial company (NBFC), from sanctioning and disbursing fresh gold loans following “material supervisory concerns” and to protect the interests of customers with immediate effect.
IIFL Finance, among the top two NBFCs in the gold loan business, has a gold loan portfolio of Rs 24,692 crore, which is 32 per cent of its loans, valued at Rs 77,444 crore at the end of the third quarter of FY24.
In a statement IIFL Finance said the financial impact quantifiable in monetary terms could not be ascertained now.
“We re-affirm our commitment to rectify observations of the RBI in gold loan portfolio to comply with RBI findings at the earliest and will continue with our endeavour to provide gold loan services in the overall interest of customers,” IIFL said. The RBI said it had instituted a special audit and the restrictions would be reviewed after the completion of the audit.
The company is allowed to service its gold loan portfolio through usual collection and recovery processes.
The restrictions were imposed under Section 45L(1)(b) of the Reserve Bank of India Act.
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Following an inspection of the company with reference to its financial position as on March 31, 2023, the regulator observed deviations in assaying and certifying purity and net weight of the gold at the time of sanctioning loans and at the time of auction upon default.
The regulator also found breaches in the loan-to-value ratio, significant disbursements and collections of loan amount in cash far in excess of the statutory limit, non-adherence to the standard auction process, and lack of transparency in charges on customers.
“These practices, apart from being regulatory violations, also significantly and adversely impact the interest of the customers,” the RBI said, adding the regulator had 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.
“This has necessitated the imposition of business restrictions with immediate effect, in the overall interest of customers.”
Industry estimates suggest IIFL Finance’s gold loan market share is 16-17 per cent. Besides IIFL Finance, Muthoot Fincop and Manappuram Finance are among top gold finance companies.
IIFL Finance emerged as the second-largest gold loan NBFC during the July-September quarter.
The yield on the gold loan portfolio was among the highest, at 19 per cent, much higher than the housing loan portfolio, which is 33 per cent of the total loans. A ban on fresh gold loans will impact the margins.
Gross non-performing assets from the gold loan portfolio were 0.8 per cent, much less than the home loan portfolio (1.6 per cent), as on Q3 of FY24.
IIFL Finance has over 2,721 dedicated gold loan branches spread across 25 states/UT, which are manned by around 15,000 employees.
The average tenure of IIFL Finance gold loan portfolio is about two years with an average loan ticket size of Rs 78,000.
It has an active customer base of 1.9 million while 260,000 customers were added in Q3 of FY24.
According to IIFL, the addressable gold loan market in India in FY23 is estimated to be Rs 5.7 trillion, of which NBFCs have a 25 per cent share. The potential market size is seen at Rs 6.2 trillion by the end of FY24.
