RBI's special audit over, IIFL Finance appoints team to implement corrective actions

IIFL Finance, which caught the eyes of the Reserve Bank of India (RBI) for the significant irregularities in its gold loan portfolio, said it has taken necessary measures to address the identified concerns and prevent their recurrence.

The company has formed a team to implement corrective actions and revise policies and procedures, IIFL Finance added in a statement.

In early March this year, RBI directed the company to stop sanctioning or disbursing new gold loans or assigning, securitising, or selling any of its gold loans.

Explaining the rationale behind this move, RBI had indicated that certain "material supervisory concerns" were observed in the company's gold loan portfolio.

Serious deviations in assaying and certifying purity and net weight of the gold at the time of sanction of loans were also observed.

The regulator initiated a special audit by an independent professional agency, which commenced on April 23, 2024, which has concluded.

However, IIFL Finance was permitted to continue servicing its existing gold loan portfolio, including loan collections and recoveries and to maintain its other business operations.

To reduce its risks, the company has raised Rs 1271.3 crore of capital through rights issues, it said in the statement. 

In addition, it has secured Rs 500 crore through non-convertible debentures (NCDs) from long-term investors.

It also has implemented cost control measures such as the reduction of major discretionary expenditures, as per the company.

"These actions ensure that the company's projected cash flows over the next three years will meet its financial obligations, maintaining robust capital adequacy," the company said.

In the fourth quarter (Q4)ended in March, the company reported a net profit after tax of Rs. 431 crore (before non-controlling interest) down 6 per cent y-o-y. 

Profit before tax (PBT) for the quarter stood at Rs 554 crore down 7 per cent y-o-y.

It is noteworthy that in Q4 loan growth in core products was robust. 

Loan growth in core products was robust - Gold loans and Home loans AUM grew by 13 per cent and 26 per cent y-o-y respectively, as per the company's filing on June 16 at the National Stock Exchange (NSE).

The microfinance segment grew by 34 per cent while digital loans and loans against property grew by 71 per cent and 29 per cent y-o-y respectively. 

The overall core loan portfolio of the company saw an uptick of 22 per cent y-o-y.

Reacting to the financial results, Nirmal Jain, Founder, of IIFL Finance Ltd said, "The regulatory action imposing an embargo on fresh gold loans has significantly impacted our business in the last quarter and continues to do so in the current quarter. We have used this opportunity to enhance our compliance, controls, and operations. The special audit has been completed, and we now await the RBI's review and expect positive action soon. The business environment remains healthy, and we are optimistic about the outlook for all our other business segments."