Only operational issues, no ethical breach, says IIFL Fin
Comprehensive steps to address all concerns, company says after stock plunges 20%
IIFL Finance Ltd on Tuesday tried to assuage investor concerns, stating there were no governance lapses, after the Reserve Bank of India (RBI) barred the non-banking financial company (NBFC) from offering any loans against gold.
On Tuesday morning, shares of IIFL Finance opened 20% lower as investors dumped shares after the banking regulator issued a statement on Monday evening that detailed some lapses.
“We wish to make it unequivocally clear that there are no governance or ethical issues,” said Nirmal Jain, managing director, in a call with analysts on Tuesday. “These are operational issues that will be addressed with all our effort and sincerity. We are taking immediate and comprehensive steps to address all concerns made by RBI.”
One of the issues flagged by RBI was “breaches in loan-to-value ratio”, raising a question on whether IIFL indeed ascertains the value of gold properly before giving loans. This prompted a few investors and analysts to wonder if an aggressive approach by sales executives was the reason. Executives stationed at thousands of IIFL branches, according to three executives, could have given more money to customers by overvaluing the gold value pledged with the Mumbai-based NBFC.
IIFL’s dedicated gold-loan branches have more than doubled in the past 30 months from a little more than 1,000 at the end of June 2021 to 2,721 as of 31 December 2023. Gujarat, Maharashtra and Goa accounted for 30% of the ₹24,692 crore gold loans disbursed at the end of 31 December 2023. IIFL’s total assets under management were ₹77,444 crore at the end of Q3.
According to RBI, gold loan providers such as IIFL Finance, Muthoot Finance and Manappuram Finance can give loans up to 90% of the value of the gold. A firm can lend more money to customers if it can show it has a higher purity of gold pledged with it, goes the explanation.
Jain, however, said this was not the
THE IIFL Finance management has been engaged with RBI only over the past 45 days
IIFL has taken corrective action to resolve differences between branches and the audit team
case. He clarified that the NBFC’s internal audit team, which assessed only the loans that turned into non-performing assets and went for auctioning, is usually conservative.
According to IIFL Finance, it offered loans against gold to over 1.9 million customers, of which 82,000 loans went for auction. RBI found a difference in the value of the gold and the loan offered to customers in 55,000 instances.
IIFL Finance said the management has been engaged with RBI only over
the past 45 days after it received the comments on the 2022-23 inspection report in January 2024.
On Monday, RBI, in its official release said it has been engaging with the senior management and statutory auditors of