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Nirmal Jain assures IIFL taking corrective steps, emphasizes compliance with RBI circular

Nirmal Jain reassured that the company is actively implementing corrective measures to reduce discrepancies in the evaluation of gold value among branches and audit teams. He underscored the company’s commitment to adhering to the RBI circular and highlighted the sufficient liquidity at the group level.

Nirmal Jain, Managing Director of IIFL Finance, clarified on Tuesday that the Reserve Bank of India’s (RBI) action on the firm’s gold loan business was attributed to ‘operational issues’ and not governance or ethical problems.

Jain expressed gratitude to the regulator, stating, “While the directive from RBI appears a little harsh, would like to express utmost gratitude to the regulator.” This comes a day after the RBI barred the Non-Banking Financial Company (NBFC) from sanctioning and disbursing fresh gold loans due to “material supervisory concerns.”

IIFL Finance, ranking among the top two NBFCs in the gold loan sector, holds a gold loan portfolio of Rs 24,692 crore, constituting 32% of its loans, valued at Rs 77,444 crore at the end of the third quarter of FY24.

The RBI specified that a special audit has been initiated, and the restrictions will be reviewed upon completion of the audit. Although the company is permitted to service its gold loan portfolio through regular collection and recovery processes, restrictions were imposed under Section 45L(1)(b) of the Reserve Bank of India Act.

Jain assured that the company is taking corrective measures to minimize differences in the assessment of gold value between branches and audit teams. He emphasized compliance with the RBI circular and noted the firm’s ample liquidity at the group level, affirming the continuation of money collection through repayment.

IIFL Finance plans to approach the RBI for an urgent meeting. The regulatory scrutiny identified breaches in the loan-to-value ratio, significant disbursements and collections of loan amounts in cash exceeding statutory limits, non-adherence to the standard auction process, and lack of transparency in charges on customers.

Jain acknowledged that gold testing is a manual and subjective process, conducted at branches where audit teams tend to be more conservative, potentially leading to differences in value assessments. He highlighted ongoing interactions with the RBI over the past 45 days.

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