IIFL Finance is set to implement significant changes in its gold business operations in the near future. One of the major steps includes hiring external assayers instead of relying on internal resources to determine the value and quality of gold assets before granting loans.

The company is also focused on reinforcing its compliance team and is in the process of recruiting a new compliance officer. A source familiar with the matter mentioned, “IIFL, like many other NBFCs, previously used internal resources for gold valuation to expedite loan disbursals and maintain cost efficiency. However, this approach is being replaced with the appointment of external assayers, aligning with industry norms.”

As part of its gold loan portfolio, IIFL Finance has witnessed a considerable portion, constituting 32% of the overall loan book at ₹24,692 crore as of the December FY24 quarter.

The Reserve Bank of India recently raised concerns regarding IIFL Finance’s gold loan operations, citing issues such as discrepancies in gold assaying and certification, violations of loan-to-value ratios, excessive cash transactions, non-compliance with auction procedures, and lack of transparency in customer charges.

Key Issues Highlighted

Insights indicate potential overvaluation of gold assets by IIFL Finance during loan sanctioning, with instances of misrepresentation such as recording 18-carat gold as 22-carat gold at branch levels. Moreover, a senior official pointed out lapses in loan disbursement procedures, highlighting breaches in cash withdrawal limits and the need for account-based transactions.

Market Response

Following the regulatory actions, IIFL Finance’s stock faced a significant drop, triggering a 20% decrease, closing at ₹478.5 per share. Addressing investor concerns, Nirmal Jain, Managing Director of IIFL Finance, emphasized that the issues flagged by the RBI are operational in nature, reassuring stakeholders that there are no governance or ethical lapses involved.

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