Business Standard

IIFL Fin’s lending partners mull options to grow gold loan book

- ABHIJIT LELE Mumbai, 7 March

IIFL Finance’s co-lending partner banks for gold loans are reviewing the arrangemen­ts and exploring various options, including inorganic routes, to grow the gold loan book.

This follows the Reserve Bank of India’s (RBI’S) restrictio­ns on non-banking financial companies (NBFCS) from engaging in gold loan business.

The RBI on Monday debarred IIFL Finance from sanctionin­g and disbursing fresh gold loans with immediate effect, citing “material supervisor­y concerns” to safeguard the interests of customers. Some of its co-lending partners for gold loans include Canara Bank, DCB Bank, and DBS Bank.

IIFL Finance, among the top two NBFCS in the gold loan business, possesses a gold loan portfolio of ~24,692 crore, constituti­ng 32 per cent of its loans, valued at ~77,444 crore at the end of Q3FY24.

The co-lending pay out under the gold loan product was ~4,123 crore (37.2 per cent of the total co-lending portfolio) as of December 31, 2023.

The share of co-lending in the gold loan business was 24.3 per cent of assets under management as of December 2023.

A senior official with Canara Bank said that the present outstandin­g is nil in terms of gold loans in this arrangemen­t. The review of the tie-up is underway.

Another lender, DCB Bank, mentioned that the gold loan co-lending arrangemen­t with IIFL Finance has been in existence since August 2021. As of now, the portfolio’s performanc­e has been satisfacto­ry.

“We have a due diligence process to give us reasonable assurance on the co-lending portfolio,” DCB Bank said in a filing with BSE.

In addition, responding to Business Standard’s query, DCB Bank mentioned that RBI action on IIFL Finance is expected to have some impact on near-term volumes, depending on how long it takes for them to restart. Fortunatel­y, the bank has a few co-lending alliances.

While the RBI has not raised any questions on know-yourcustom­er, governance, or co-lending, the co-lending operation is affected because the regulator has barred IIFL Finance from issuing any fresh gold loans.

IIFL Finance has already adhered to all and has communicat­ed the same to RBI, according to IIFL sources.

Domestic brokerage Motilal Oswal, in a research note after an analyst call, said IIFL will have to work with customers and co-lending partners to prevent any damage to its gold loan brand and trust built over the last many years.

Another partner for gold loans, DBS Bank India, a unit of Singapore-based DBS Bank, said it has a co-lending relationsh­ip for gold loans with IIFL. However, consequent to the latest regulatory restrictio­ns preventing IIFL from booking new loans, it will not originate any incrementa­l new business under the co-lending arrangemen­t.

“Our primary focus remains on our organic gold loans, which have been the cornerston­e of our consumer lending business, and we will continue to grow this part of our business,” a spokespers­on for DBS Bank India said.

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