India's central bank on Monday ordered non-bank finance company IIFL Finance (IIFL.NS) to stop sanctioning, disbursing and selling gold loans with immediate effect, citing "material supervisory concerns" in its gold loan portfolio.
There were "serious deviations" in assessing the gold taken as collateral and breaches in the maximum permitted loan-to-value ratio, the Reserve Bank of India (RBI) said in a statement, citing findings from an inspection carried out on the company's financial position as on March 31, 2023.
The RBI also found that IIFL Finance made significant disbursals and used cash collections more than permitted, and there was a lack of transparency in the charges levied to customer accounts.
IIFL said in an exchange filing it could not ascertain the financial impact from the order at this time.
Its gold loans under management stood at 246.92 billion rupees (about $3 billion) as on Dec. 31, accounting for 32% of its total assets.
"We reaffirm our commitment to rectify observations of the RBI in gold loan portfolio," IIFL added.
The central bank has been engaging with the company's senior management and auditors on these deficiencies over the last few months, but no meaningful corrective action has been "evidenced so far", necessitating the imposition of business restrictions "in the overall interest of customers", the RBI said.
India's central bank has stepped up oversight of banks and non-bank finance companies over the last few years to ensure compliance of its norms and protect customer interest.
The central bank will review the restrictions on IIFL Finance after completion of a special audit and rectifications by the company, it said.
For now, IIFL can continue to service its existing gold loan portfolio through usual collection and recovery processes, the regulator said.
Shares of the company closed 4.1% lower on Monday.
($1 = 82.8940 Indian rupees)
