The call is uploaded on the website but here is some autogenerated summary.
IIFL Call after RBI Action - 5th March 2024
RBI’s Concerns about IIFL Finance’s Gold Loan Portfolio:
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Deviations in assesing and certifying gold purity.
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Breaches in loan-to-value (LTV) ratios.
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Excess cash beyond statutory limits.
Corrective Actions Taken by IIFL Finance:
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Minimizing deviations in gold assessment between branches and the audit team.
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Implementing stronger systems to ensure compliance with LTV norms.
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Aligning cash disbursement practices with the Income Tax Act interpretation.
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Ensuring comparability of auctions as per RBI’s circular.
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Clarifying the purpose of the ₹200 option notice or option intermission charge.
Operational and Procedural Issues:
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Addressing operational and procedural issues with sincerity and effort.
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Emphasizing the absence of governance or ethical issues.
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Reiterating the company’s solid foundation built on trust and support.
Commitment to Compliance and Transparency:
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Taking immediate and comprehensive steps to address RBI’s concerns.
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Implementing necessary remedial measures to comply with and exceed regulatory standards.
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Navigating the situation with transparency, integrity, and respect for compliance standards and regulations.
Stakeholder Support and Appreciation:
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Expressing gratitude and admiration for RBI’s commitment to financial system stability and integrity.
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Acknowledging the value of RBI’s guidance and oversight in fostering trust, transparency, and resilience.
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Emphasizing the importance of continued support from stakeholders, customers, employees, and partners.
Gold Securitization and Assignments:
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Gold remains with the company during securitization and assignments.
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Assessment is done by the company.
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Assignment partners or co-lending partners have access to data and can audit the gold packets.
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Securitization is mostly done through the PTC route, while assignments account for 90% of transactions.
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The company has 15 co-lending partners.
Deviations in Gold Weight and Valuation:
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Deviations in the net weight of gold between disbursement and auction identified by the audit team.
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Deviations found in 55,000 cases, but most of the money has been recovered.
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Engaging with RBI to address valuation concerns and requesting a meeting.
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RBI has been highlighting valuation observations in previous engagements, and corrective actions are being taken.
Cash Disbursement and Opex:
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Cash disbursements have been stopped, but earlier disbursements up to two lakh rupees were happening through cash mode.
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Banks are allowed to do cash disbursement up to two lakh rupees, but they can’t do more than one piece.
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Monthly opex of the branches for gold is around 65 to 70 crores, and the monthly collection growth on the golden portfolio is more than 135 crores.
RBI’s Inspection Report and Corrective Actions:
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Received an inspection report from RBI in January and taking corrective actions.
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No other ongoing inspections or inquiries by RBI for any other products.
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Planning to revamp processes to address issues identified in the RBI’s inspection report.
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No penalties or actions taken by RBI against the company prior to this inspection.
Financial Impact and Gold Loan Portfolio:
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Financial impact of RBI’s action is uncertain and depends on the time taken to resolve the issues.
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Gold loan business incrementally adds about 5% to the portfolio in a quarter and runs down about 10-12% every month, making it difficult to determine the overall impact on asset quality.
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