IIFL Finance grows its gold loan portfolio by ₹2,000 cr about a month after RBI lifted lending ban
After the Reserve Bank of India (RBI) lifted the embargo on IIFL Finance’s gold loan business on September 19, 2024,the non-banking finance company is gradually re-building this business, with its loan portfolio growing by ₹2,000 crore in about a month.
IIFL Finance’s gold loan book had shrunk from ₹26,000 crore in early March 2024, when the RBI embargo on its gold loan business in terms of sanction and disbursement took effect, to ₹10,000 crore by September 19, 2024, when the embargo was lifted.
Referring to an inspection of the company, which was carried out with reference to its financial position as on March 31, 2023, RBI said certain material supervisory concerns were observed in its gold loan portfolio.
The concerns, according to RBI, included 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; and breaches in Loan-to-Value ratio.
Further, the central bank came across significant disbursal and collection of loan amount in cash far in excess of the statutory limit; non-adherence to the standard auction process; and lack of transparency in charges being levied to customer accounts, etc.
RBI ban: came out stronger
“So, I think, we have been able to satisfy the RBI with our compliance rectifications and all the corrections that we did. We have strengthened our compliance as well as all assurance functions, which comprise risk and audit as well, and we continue to do so.
“So, while this period has been challenging, but we came out stronger from this…As we restarted our business…, you would have seen that the gold loan book, which had fallen from ₹26,000 crore to around ₹10,000 crore by the time the embargo was lifted, is around ₹12,000-odd crore now,” Nirmal Jain, Founder & Managing Director, IIFL Finance told analysts.
Jain expects expects the gold loan portfolio to be back to where it was a year ago by the fourth quarter (Q4FY25)-end.
Customers coming back
“So, I think, we aren’t doing anything extraordinary in terms of being aggressive or whatever. Customers are coming back. There has been a relationship with many customers for more than 10 years.
“And wherever they have taken a loan, when that gets over, we see that customers in many cases prefer to come back to us,” the IIFL Finance Chief said.
Cashless transactions
Jain noted that transactions in the industry are becoming completely cashless, more, or less.
“So, it has become completely digital, which is easier from a long-term perspective and good for the industry going forward….earlier there was a fear that if we move away from cash, customers will go back to money lenders.
“But, I think, customers have a digital Jan Dhan account or UPI. Sometimes you have to educate and make sure that the (digital) activation happens,” he said.
Jain emphasised that even the competition is moving towards digital transactions, which is a healthy practice.
“And given that the gold prices are firm, I think, there is a demand at the ground level in the economy. Many of our customers are small businesses. So, we see that there is good traction going forward in the next few months,” Jain said.