IIFL Fin to bring in external gold assayers

NBFC searching for a new compliance officer

IIFL Finance’s gold business is expected to undergo some major changes in the coming months.

To start with, the company will replace its internal assayers with certified external experts to assess the value and quality of the underlying asset before extending loans.

COMPLIANCE TIGHTENING

The company also plans to revamp and strengthen its compliance team and the search is on for a new compliance officer. “Like most NBFCs, IIFL was also assessing the value of gold using internal resources because it reduced the turnaround time on loan disbursements and was cost effective. That practice must be discontinued now, and the lender is in the process of appointing external assayers as done in most banks,” said a person familiar with the development.

IIFL Finance did not respond to an email seeking confirmation of these developments.

Gold loans account for 32 per cent of IIFL Finance’s total asset book and stood at ₹24,692 crore in the December quarter.

On Monday, the Reserve Bank of India noted certain material supervisory concerns in the gold loan portfolio of IIFL Finance 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; breaches in loantovalue ratio; significant disbursal and collection of loan amount in cash far in excess of the statutory limit; nonadherence to the standard auction process; and lack of transparency in charges levied to customer accounts. According to sources, IIFL may have overvalued the underlying asset (gold) at the time of extending the loan and this discrepancy came to fore either during audit or auctioning of the asset.

“There are instances where 18carat gold may have been recorded as 22carat at the branch,” said a senior official aware of the matter. “Likewise, once sanctioned, the loan amount should be withdrawn by the borrower through a bank account. It cannot be handed out in cash. Only up to ₹20,000 can be given as cash and this limit was far breached”.

IIFL Finance stock was locked in the lower circuit (down 20 per cent) at ₹478.5 a share on Tuesday.

‘NO ETHICAL ISSUES’

In a call with investors, Nirmal Jain, MD, IIFL Finance, said, “While the direction of the RBI appears to be a bit hard, I take a moment to express our profound gratitude and admiration for the RBI. I want to make it unequivocally clear that there are no governance or ethical issues at play. These are operational and procedural issues which we will address.”