RBI Special Audit Concludes: IIFL Finance

IIFL Finance, under the scrutiny of RBI for irregularities in its gold portfolio, took corrective measures and concluded the special audit. The audit began on 23 April 2024, following an earlier inspection of IIFL’s financial position for Q4FY2024, leading to the imposition of supervisory restrictions on March 4, 2024. 

Reason for inspection:

The initial inspection of RBI on March 4, revealed several irregularities in IIFL’s gold loan opportunities, including cash disbursals, collections exceeding statutory limits, non-compliance with the standard auction process, deviations in assaying and certifying gold purity and weight, breaches in the Loan-to-Value (LTV) ratio, and a lack of transparency in customer charges. RBI stated material supervisory concerns and serious deviations in assaying and certifying the purity and net weight of the gold while sanctioning the loans. These findings led RBI to mandatorily cease the sanctioning and disbursing of new gold loans and the assignment, securitization, or sale of existing gold loans. Servicing the current gold portfolio, to manage collections and recoveries was the only function permitted to the IIFL.

IIFL’s measures

Upon these findings, IIFL took comprehensive measures to address and rectify the issues. The board formed a specialized team to implement corrective actions and revise policies and procedures. To ensure minimal risk to its “going concern” status, the company executed several strategic initiatives. One such initiative was raising Rs. 1271 Cr through an equity rights issue in May 2024. Additionally, the company also secured Non-Convertible Debentures (NCDs) from long-term investors.

Company’s Financials:

In the fourth quarter, the company reported a net PAT of Rs.431 Cr, down by 6% YoY. The loan growth in core products- Gold Loans and Home Loans of 13% and 26% YoY respectively, led to a rise in assets under management.

Conclusion: This regulatory action had a significant impact on the business but it also came as an opportunity to enhance its compliance, controls, and operations.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.