IIFL Finance Gold Loan Portfolio Increased by ₹2,000 Crore After RBI Ban Lift
In a month since the Reserve Bank of India (RBI) lifted the lending restrictions on IIFL Finance’s gold loan business on September 19, 2024, the non-banking finance company (NBFC) has reported a ₹2,000 crore growth in its gold loan portfolio. This increase marks a significant recovery for IIFL Finance, which saw its gold loan book shrink from ₹26,000 crore in early March 2024 to ₹10,000 crore by the time the RBI ban was lifted.
Background on RBI’s Restrictions and Their Impact
The RBI initially imposed restrictions on IIFL Finance’s gold loan operations following an inspection referencing the company’s financial position as of March 31, 2023. The RBI cited “material supervisory concerns” within IIFL’s gold loan portfolio. Key issues noted included irregularities in assaying and certifying gold purity, deviations in the Loan-to-Value (LTV) ratio, and excessive cash transactions beyond regulatory limits. Additional concerns involved non-standard auction processes and inadequate transparency regarding customer fees.
Strengthening Compliance for Sustainable Growth
Since the lifting of the ban, IIFL Finance has focused on strengthening its compliance, audit, and risk management practices to address regulatory concerns and enhance transparency. According to Nirmal Jain, Founder and Managing Director of IIFL Finance, the improvements position the company for future growth. “While the RBI restrictions posed challenges, we emerged stronger and more prepared. Since the ban lift, our gold loan book has grown from ₹10,000 crore to approximately ₹12,000 crore,” Jain shared with analysts. He anticipates the portfolio will fully recover to pre-restriction levels by Q4 FY25.
Customer Loyalty Drives Recovery Efforts
Customer loyalty has played a key role in IIFL’s portfolio recovery. Jain noted that many of IIFL’s gold loan customers have been with the company for over a decade. “Our focus remains on customer service rather than aggressive expansion. Many clients have a strong history with us and prefer returning to IIFL once their other loans are settled,” Jain explained.
Embracing Cashless and Digital Transactions
To adapt to industry trends, IIFL Finance is embracing a cashless, digital-first approach. Today, most transactions in IIFL’s gold loan sector are processed digitally, with customers increasingly using UPI and Jan Dhan accounts for loan disbursements and payments. While there were initial concerns that this shift away from cash could impact customer retention, IIFL has focused on educating customers on digital transactions, making the process more seamless and secure.
“Moving away from cash transactions initially raised concerns that some clients would turn to informal lenders. But with the increased use of digital accounts, including UPI and Jan Dhan, customers are adapting well to cashless options,” Jain said. This shift aligns with industry trends, with even competitors moving toward digital transactions, reinforcing customer convenience and transparency.
Positive Outlook for IIFL’s Gold Loan Business
With a stronger compliance framework, steady gold prices, and rising demand for gold-backed loans, IIFL Finance is optimistic about the future. Many of the company’s gold loan customers are small business owners, and the demand for these loans continues to grow in line with local economic activity. Jain noted, “Given stable gold prices and healthy demand, especially from small businesses, we see good momentum ahead.”
IIFL Finance’s focus on regulatory compliance, digital adoption, and customer loyalty has positioned it well for sustained growth in its gold loan segment. With further portfolio expansion anticipated by the end of the financial year, the company is poised to strengthen its presence in India’s competitive gold loan market.
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