Only operational issues, no ethical breach, says IIFL Finance

livemint.com:

MUMBAI : 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