RBI bans IIFL Finance from giving gold loans due to serious deviations

Current Context: On March 4, 2024, the Reserve Bank of India (RBI) directed IIFL Finance Ltd. to stop sanctioning or disbursing gold loans with immediate effect.

• This decision was taken following an inspection of the company for the year ending March 31, 2023.
• The regulator observed certain material supervisory concerns in the gold loan portfolio of the company, including 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.
• These violations significantly and adversely impact customers’ interest.
• Despite the RBI’s engagement with the company’s senior management and statutory auditors on these deficiencies, no meaningful corrective action has been evidenced so far.
• This news caused a significant drop in IIFL Finance’s share price.
• The RBI’s move is expected to benefit other top gold financing companies in the country, such as Manappuram Finance and Muthoot Finance.

Question:

Q.1 What were the serious deviations observed by the RBI in the gold loan portfolio of IIFL Finance Ltd.?
a. 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.
b. Deviations in the interest rates charged on the gold loans.
c. Deviations in the repayment schedule of the gold loans.
d. Deviations in the customer service provided to the gold loan customers