RBI Issues Circular On Levying Unfair Interest Charges On Customers

The Reserve Bank of India has on Monday, directed IIFL Finance Ltd to stop and refrain from sanctioning or disbursing gold loans or assigning/securitising/selling any of its gold loans, with immediate effect.

The company has, however, been allowed to continue to service its existing gold loan portfolio through usual collection and recovery processes and business practices.

This is the second major action taken by RBI against a finance company in the past two months. On January 31, the RBI barred Paytm Payments Banks Ltd to stop taking credits into its accounts from customers by February 29. This date has now been extended to March 15. The action against Paytm Bank was due to non-adherence of KYC norms by the bank.

The move on IIFL came after RBI inspected the financial position of the company as on March 31, 2023. The central bank observed certain material supervisory concerns in the gold loan portfolio, 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; breaches in loan-to-value ratio; 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.

These practices, apart from being regulatory violations, also adversely impact the interest of the customers. Over the last few months, the RBI has been engaging with the senior management and the statutory auditors of the company on these deficiencies; however, no meaningful corrective action has been evidenced so far. This has necessitated the imposition of business restrictions with immediate effect, in the overall interest of customers, the central bank said in a press release.

These supervisory restrictions will be reviewed after the completion of a special audit that will be instituted by RBI and after implementation of the findings of RBI by the company, the action may be reviewed.