RBI's special audit to probe regulatory breaches of IIFL Finance, JMFPL

Banking regulator seeks interest from Sebi-empanelled audit firms to conduct the audit

The Reserve Bank of India (RBI) will commence a special audit of IIFL Finance Ltd and JM Financial Products Ltd (JMFPL) to further probe their regulatory breaches from April 12, 2024.

IIFL Finance is barred from extending gold loans, JMFPL is facing a ban on financing shares or debentures. While imposing restrictions on both entities, RBI had stated that the business restrictions would be reviewed upon the completion of a special audit and after rectification of the deficiencies to satisfaction.

The regulator has floated an e-tender to seek interest from audit firms to conduct a special audit of these two non-banking finance companies. Audit firms empanelled by Sebi for forensic audits can participate in the tendering process. The selected firms will be awarded work on April 12, 2024, according to RBI’s communication on its website.

On March 4, 2024, RBI debarred IIFL Finance from sanctioning and disbursing fresh gold loans following ‘material supervisory concerns’ and to protect the interests of customers with immediate effect. Gold loans accounted for 32 per cent (Rs 24,692 crore) of the overall consolidated assets under management (AUM) of the IIFL Finance Group and 79 per cent of the standalone AUM of IIFL Finance as of December 31, 2023. IIFL Finance operates over 2,721 dedicated gold loan branches across 25 states and UTs, with approximately 15,000 employees.

As for JM Financial Products, on March 5, 2024, the central bank debarred it from providing any form of financing against shares and debentures, including sanction and disbursal of loans against initial public offering, with immediate effect. RBI observed certain serious deficiencies relating to loans sanctioned by the company for Initial Public Offering (IPO) financing as well as Non-Convertible Debentures (NCDs) subscriptions.  

The RBI carried out a limited review of the books of the company based on the information shared by the Securities and Exchange Board of India (SEBI). According to JM Financial’s annual report for FY23, JM Financial Products’ net assets were worth Rs 1,942.86 crore, or 17.32 per cent of the consolidated net assets of the group.