Audit Begins At IIFL Finance After RBI Put a Halt at its Gold Business

IIFL Finance Ltd, a diversified non-banking financial company (NBFC) in India, provides a range of financial services through its subsidiaries. It offers various products including gold loans, business loans, home loans, microfinance, capital market finance, construction finance, etc. It is a listed company with a market cap of Rs.17,539 Cr. Additionally, it is among the leading non-banking financial companies (NBFCs) in the gold loan sector, ranking within the top two. Its gold loan portfolio stands at Rs.24,692 crore, making up 32% of its total loan portfolio of Rs.77,444 crore as of the end of the third quarter of FY24.

RBI ordered a special audit 

Recently, the Reserve Bank of India (RBI) has ordered a special audit that includes a thorough examination of the company’s operations, financial records, compliance with regulatory requirements, risk management practices etc to identify any irregularities, and areas of improvement and ensure that the company adheres to regulatory standards. The special audit has commenced at IIFL Finance Ltd following the RBI’s restrictions on gold loan sanctions, it aims to scrutinize the company’s operations and compliance in light of the RBI’s intervention. It is going to focus on the regulatory concerns surrounding IIFL Finance’s gold loan business.

Emphasizing regulatory compliance 

The initiation of the special audit shows the importance of regulatory compliance and transparency in the NCFC sector. It also highlights the company’s commitment to addressing any issues identified and ensuring adherence to regulatory standards as they said that they are going to cooperate with the auditing team and keep the stakeholders informed about developments, if any, to ensure complete transparency.

Inspection revelations 

The RBI’s March inspection revealed that IIFL Finance did not follow the standard auction process and lacked transparency in the fees charged to customer accounts. Additionally, there were discrepancies in assessing and certifying the purity and weight of gold during loan approval and in auctioning off defaulted items. For now, the RBI has halted the issuance of new gold loans by IIFL Finance until an audit is satisfactorily completed. 

Conclusion: The special audit initiated by the RBI at IIFL Finance highlights the importance of regulatory compliance and transparency in the NBFC sector. Recent disclosure from the RBI’s inspection highlights red flags in standard practices, emphasizing the need for the company to rectify and regain trust in its operations.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.