Special Audit is the latest plan of RBI to monitor the financial activities of IIFL Finance and JM Financial Products. The Apex financial body of India, on 4th March, ordered IIFL Finance to stop sanctioning gold loans with immediate effect. There are some doubts regarding the company’s gold loan portfolio.
The RBI has already taken steps to appoint auditors for this special Audit. It also asked for tenders from reputed Auditors.
Action From IIFL Finance – Special Audit
According to the RBI officials, this special Audit is vital to check compliance with different rules. Hence, IIFL Finance was forced to stop disbursing any fresh gold loans.
When asked, the Independent Director and Chairman of IIFL Finance stated that they had already submitted suitable responses to RBI. According to the latest reports, the company submitted a compliance report to Apex Bank in response to the action filed by RBI within the stipulated period. It ended on 8 March 2024.
RBI suspects supervisory deviation in the disbursement of gold loans. Hence, there are concerns that the effects of such activities are material. Therefore, an audit is an immediate requirement to understand the intention of the financial institution.
RBI’s Decision For JM Financial Products
After IIFL, the RBI restricted loans against shares and debentures for JM Financial Products. According to the RBI, “Such an action was necessary due to several discrepancies with the company’s loan matters.”
The Central Bank has observed many serious issues connected with this organisation’s financial services. Therefore, a Special Audit was needed to highlight the actual deviations and governance issues. Hence, it ordered a complete stoppage of the disbursal and sanctioning of loans for IPO shares.
Inspection by RBI
RBI already conducted an inspection to observe the financial position of IIFL Finance as of 31st March 2023. This inspection revealed serious concerns about the gold portfolio. The practices included violation of law and deviations while declaring the net weight of gold and its purity. According to the central bank, such actions lead to adverse impacts on the general public. Thus, such practices should be curbed with immediate effect.
Corrective actions are necessary in such a sensitive situation. When no evidence is available, it is important to temporarily cease the business.
The RBI added, “The business restriction is not subject to any prejudice for any supervisory action.” Hence, the RBI’s decision to conduct a Special Audit is only to protect the interests of the customers.
