Puruwar says they have been fully compliant with RBI regulations. But if deviations have taken place, they would like to address those immediately.
I want to understand when RBI says material supervisory concerns, what exactly does it mean? Can you throw light on what happened in this case?
AK Purwar: Actually, it was a regular RBI inspection. They regularly come and inspect our company and our business. They had flagged certain issues on the operational sides of the gold loan business of the company. There were basically local based issues, retail lending issues and relating to valuations, relating to auction processes and so on. We have taken the report of the RBI very seriously and very positively and we are working very hard. For the last two days, we had continuous board meetings to evaluate each and every line of the RBI inspection report. And we have put in place a mechanism that all these issues, some of these issues have already been addressed, but we would like to address all these issues in a very time bound manner.
We understand that this is not the first time. In the last 45 days, there were already some communication from the RBI’s side after they had actually found certain gaps in your processes. And despite identifying those gaps, these were not filled by IIFL. Is that true? Have you found out exactly?
AK Purwar: I would put it this way that RBI pointed out certain gaps in our systems. Let me put it that the gold loan business which we are having, the practices, systems, processes is all as per present industry standards and present industry norms. RBI suggested certain changes which we have in a way carried out. But in the last two days, we have decided in the board as well as the company that we shall carry out all the suggestions made by RBI in a time bound manner.
What were the suggestions made by the RBI and what exactly did they warn you of in the last 45 days?
AK Purwar: There were a couple of issues on the gold valuation side. There were a couple of issues on the gold auction, auction processes and auction charges side. I would put it this way that we started addressing these, internally debating these issues. What we found was that our practices were as per industry standards. But we decided that our practices were as per industry standards, but if the RBI, our regulator, wants the business to move in a certain way, then we would follow RBI instructions. We are sure and we expect that RBI will ensure that each and every player of the industry follows the same and it becomes a level playing field for all of us.
But do you mean to say there was a deviation in processes, the standard which the regulator themselves have put out.
AK Purwar: I would not say that. I would put it this way that our interpretation or that of many players of the industry, were in a certain manner. Maybe that is where something happened. But as a company, we have been fully compliant with RBI regulations. We would like to see if deviations have taken place, we would like to address those deviations immediately. Sort it out and become fully compliant with RBI regulations.
What could be the timeline of the remedial action? There was no timeline shared and uncertainty is like the biggest devil in the market. Could you clarify a little bit more on that?
AK Purwar: Let me go beyond what is being discussed and let me debate on something internally which we have decided. We have decided that whatever RBI desires in terms of compliance of regulations, as a company, as a business unit, we will see to it that by 31st March all or if not most of it gets complied with. And we are continuously going to engage with RBI to apprise them from time to time on a regular basis as to what kind of remedial action has already taken place and what is going to take place.
So 30% of your loan book is shut for business right now? For incremental business?
AK Purwar: Incremental. We have a huge business, a gold loan portfolio and well incremental business, it is a short term business. Loans are taken for a period of 16 months, 12 months, 18 months, 24 months. Most of our customers are small customers, very very small farmers, small labourers, small business units and therefore we fulfil a financial requirement of a large part of the people who are coming from a somewhat disadvantaged community. So it is going to be, but it is going to be a big business loss to us.Yes because the brokerages community is already talking about some of the competitors taking a lot of market share and loss of opportunity for you.
AK Purwar: I would put it this way that sometimes some incidents happen which educate you. And we have taken that well this has happened, we have to handle it. We have to handle it satisfactorily and to the satisfaction of our shareholders, stakeholders and customers. Having said that, we have an advantage. The advantage is that in terms of IT, we can compete with the best in the industry and provide the best possible service to our customers. So losing market share temporarily, we are prepared for it.
But is this 31st March deadline set by the regulator or you all?
AK Purwar: Internal. We are very clear and very sure that we would see to it within the company that all these issues which have been flagged by RBI are comprehensively addressed by us by 31st March.
Then you communicate that to the regulator and then they act on it.
AK Purwar: No, no we are already in touch with regulators. Whatever improvements we are bringing about we are going to appraise RBI regularly from time to time in a very regular manner.
So by April it would be business as usual is what you are expecting?
I would say that we are making efforts to ensure that our business comes back on rails as early and as quickly as possible. I would not like to give a timeline because it is not in our hands.
Given that we are talking about the impact and the ripple effect of this, you were talking about your market share etc. How much damage or impact do you see and when do you think things will start improving?
AK Purwar: The damage will definitely be there because almost 30% of our business is now we have stopping of doing. So damage will be there but I expect this damage to be temporary. I expect that we are making efforts to come back on rails as fast and as quickly as possible.
I expect that maybe in two or three months, we will be able to convince the RBI. If they are comfortable with whatever remedial action we have taken and they carry out a special audit as early and as quickly as possible, then we should be coming back on rails very fast. But our IT advantage would ensure that the high growth trajectory which our company has followed so far would not be allowed to go away.
We understand that you also have co-lending loan partnerships with the DBS Bank, Canara Union, UCO Bank, South Indian Bank, a plethora of them. Has there been any communication from their end once they got to know about this?
AK Purwar: Not so far, not so far.
Is there a risk?
AK Purwar: There is always a possibility of setbacks in that business also. But having said that, in the co-lending space, we have done well so far and we expect to do well. And again I would go back to what I am saying that the IT advantage which our organisation has built up over a period of time, helps us in dealing this kind of business with various customers of ours.
So broadly in your overall gold AUM, will there be around a 50% fall FY25? Any sort of projections, numbers, estimates?
AK Purwar: I would not put it this way that we will have a fall of 25% in 2025. Rather I would put it this way that if we come back on rails quickly, there would not be any negative fall by March 25. We will continue to maintain the present market share, hopefully.
Okay, that’s interesting. So whatever disruption is only temporary, by 25 you will regain and come back on the growth path.
AK Purwar: As I told you, our all efforts are to convince regulators that we are following their instructions. Not only later, but in spirits. We would like to convince them of our intentions and come back to business as early as possible.