The Reserve Bank of India (RBI) on Monday directed IIFL Finance Ltd to stop sanctioning or disbursing gold loans or assigning, securitising, or selling any of its gold loans. IIFL, however, can continue to service its existing gold loan portfolio through the usual collection and recovery processes, the central bank said.
The banking regulator's move came after it observed certain material supervisory concerns 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".
The RBI also observed breaches in loan-to-value ratio, significant disbursal, and collection of the loan amount in cash far in excess of the statutory limit, non-adherence to the standard auction process, and lack of transparency in charges being levied to customer accounts, etc.
"These practices, apart from being regulatory violations, also significantly and adversely impact the interest of the customers," the regulator said, adding that over the last few months, it 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 necessitated the imposition of business restrictions with immediate effect, in the overall interest of customers, the RBI said.