RBI removes restrictions on IIFL Finance’s gold loan operations

IIFL Finance Ltd, on Thursday, announced that the Reserve Bank of India (RBI) has removed the restrictions previously placed on its gold loan business.

"RBI, through its communication dated September 19, 2024, has lifted the restrictions imposed on the gold loan business of the company. The RBI's decision is effective immediately and allows the Company to resume the sanctioning, disbursal, assignment, securitisation, and sale of gold loans in compliance with all relevant laws and regulations," said IIFL Finance in a stock exchange filing.

On September 19, IIFL Finance's shares on the NSE ended the trading day down by 6 percent, closing at ₹497 each.

"The Company is committed to upholding the highest standards of compliance and will continue to ensure that the remedial actions taken are sustained," added IIFL Finance.

The RBI implemented the restrictions on March 4, 2024.

In March, IIFL came under regulatory scrutiny amid a crackdown on financial firms. The RBI instructed it to halt new gold-backed lending due to "material supervisory concerns." Consequently, three local rating agencies—ICRA Ltd, Crisil Ltd, and Care Ratings Ltd—placed it on a rating watch with negative or developing implications following the ban.

Fitch Ratings, an international credit assessor, has placed its B+ rating on negative watch.

According to financial reports cited by Bloomberg on September 19, the number of employees in gold loan branches has decreased from 15,000 in March to 12,000 in June.

The assets under management in its gold loan business have decreased by over 50% to ₹12,162 crore as of August 5, following the March ban.

In March, the RBI conducted an inspection of the company to review IIFL’s financial status as of March 31, 2023.

“Certain material supervisory concerns were observed in the gold loan portfolio of the company, including serious deviations in assaying and certifying purity and net weight of the gold at the time of sanction of loans and at the time of auction upon default…,” it noted.

In March, the RBI stated that it would reassess the supervisory restrictions after a special audit conducted by the RBI was completed and the company had addressed the audit's findings. The restrictions would be reviewed once the company’s corrective actions and the results of the RBI’s inspection met the central bank’s satisfaction.