The Reserve Bank of India (RBI) on Monday barred IIFL Finance from sanctioning or disbursing gold loans with immediate effect after it observed certain material supervisory concerns in this portfolio.

The central bank had carried out an inspection of the company concerning its financial position as of March 31, 2023.

``Certain material supervisory concerns were observed 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," the RBI said.

It said there were breaches in the loan-to-value (LTV) ratio and significant disbursal and collection of loan amounts in cash far above the statutory limit.

There was non-adherence to the standard auction process and lack of transparency in charges being levied to customer accounts, the RBI said.

LTV is the loan amount that a customer gets for the worth of gold: currently, the LTV ratio stipulated by the RBI is 75 per cent for gold loans. This means that if the value of gold is say Rs 1 lakh, the customer will get loans of up to Rs 75,000.

According to the RBI, the practices that were followed by IIFL Finance, apart from being regulatory violations, significantly and adversely impacted the interest of the customers.

The RBI disclosed that over the last few months, it has been engaging with the senior management and the statutory auditors of the company on these deficiencies.

However, IIFL did not take any meaningful and corrective action.

``This has necessitated the imposition of business restrictions with immediate effect, in the overall interest of customers,’’ it said.

The RBI added the restrictions will be reviewed upon the completion of a special audit by the apex bank

The clampdown will be removed after rectification by the company of the special audit findings and the findings of the RBI inspection.

The restriction is without prejudice to any other regulatory or supervisory action the RBI may initiate against the company.

IIFL Finance can, however, continue to service its existing gold loan portfolio.