RBI Initiates Special Audits For IIFL Finance, JM Financial Over Regulatory Breaches

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New Delhi: The Reserve Bank of India (RBI) has announced plans to conduct a special audit to investigate regulatory breaches by IIFL Finance Ltd and JM Financial Products Ltd (JMFPL). This decision comes as the RBI has initiated the process for appointing auditors to thoroughly examine any potential violations.

The Reserve Bank has issued two distinct tenders to appoint auditors for conducting special audits of these two non-banking finance companies. Audit firms listed by the Securities and Exchange Board of India (Sebi) for forensic audits are eligible to participate in the tender process, as per the tender document. The deadline for submitting bids is April 8, and the firms chosen will be assigned work on April 12, 2024. ()

The RBI imposed restrictions on IIFL Finance and JM Financial Products due to their failure to comply with regulatory guidelines in March. The central bank prohibited IIFL Finance from approving or distributing gold loans following the identification of significant supervisory concerns in its gold loan portfolio. ()

The RBI stated that it conducted an examination of the company concerning IIFL's financial status 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," RBI stated in a statement.

The day after, the RBI enforced restrictions on JM Financial Products after discovering that the company engaged in multiple manipulative activities. This included assisting a group of its own customers in bidding for various IPOs by utilizing borrowed funds repeatedly.

The RBI prohibited the NBFC from offering any form of financing involving shares and debentures which includes approving and distributing loans against initial public offerings (IPOs) of shares and subscribing to debentures.

The actions were “necessitated due to certain serious deficiencies observed in respect of loans sanctioned by the company for IPO financing as well as NCD (non-convertible debentures) subscriptions," the RBI had said. (With Inputs From PTI)