IIFL Finance Implements Corrective Steps to Address RBI’s Concerns on Gold Loan Portfolio

IIFL Finance has implemented corrective measures to address RBI's concerns over its gold loan portfolio. Despite challenges, the company reported growth in core loan products and remains optimistic about its future prospects.

IIFL Finance, a prominent NBFC, has provided an update on the measures that have been taken to address the RBI’s concerns about its gold loan book. The company has constituted a special team to monitor the corrective measures and change its policies and standard operating procedures.

Earlier this year in March, the RBI asked IIFL Finance to stop fresh gold loans and gold loan portfolios to be sold, securitized or assigned. The central bank said that this decision was based on ‘material supervisory concerns’ and the fact that there were serious deviations when it came to the process of assaying and certification of the purity and net weight of gold at the time of loan sanction.

After that, the RBI conducted a special audit with an independent professional agency, which started on April 23, 2024, and ended on the date of this report. During this period, IIFL Finance was allowed to carry out collections and recoveries of gold loans; and other business activities.

However, to manage these risks IIFL Finance has implemented measures that would enhance its financial status. The company mobilised Rs 1,271. 3 crore through rights issues and achieved Rs 500 crore through non convertible debentures (NCDs) from the long term investors. Moreover, the company practices cost containment measures including the curbing of major discretionary expenses.

‘These actions would ensure that the company’s projected cash flows over the period of the next three years would enable it to meet all its financial obligations while keeping adequate capitalization,’ IIFL Finance noted in a statement.

The company faced a number of issues in the gold loan segment but it posted a net profit after tax of Rs 431 crore (before non-controlling interest) in the fourth quarter ended March 2024, down 6% YoY. The profit before tax (PBT) for the quarter was Rs 554 crore, a drop of 7% yoy.

However, the company experienced a rapid growth in its basic loan products during the year. Gold loan and Home loan AUM increased by 13% and 26% respectively on a yoy basis. The micro finance segment increased by 34% while digital loans and loans against property rose by 71% and 29% respectively on a year-on-year basis. The core loan portfolio of the company, which is the total net loans and advances, rose by 22% yoy.

On the financials, Nirmal Jain, Founder of IIFL Finance Ltd, stated: On the operating front, the action by the regulators to impose an embargo on fresh gold loans has adversely affected our business in the last quarter and is impacting the current quarter as well. This has however provided an opportunity to strengthen both our compliance, controls and operations We have received an understanding from the special auditors and now await the RBI review and expect positive.

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While operating in the current turbulent environment, IIFL Finance has set its primary strategic directions as continuing the enhancement of the compliance system, enhancing operations, and making sure the company is ready to function in the future and develop steadily.