IIFL Finance to make slow growth in gold loan after RBI lifts curbs; profitability may be hit: Brokerages

The non-bank lender on September 19 in an exchange filing said that RBI has lifted restrictions imposed on the company's gold loan business.

With the Reserve Bank of India (RBI) lifting restrictions on gold loan business from IIFL Finance on September 19, the non-bank lender will now focus on slow-but-steady growth in the segment, brokerages said.

The lender will look at following compliance measures more strictly and may see some impact on the profitability in the near term, they said.

“The lifting of the ban on gold finance business is surely a positive news for IIFL Finance but we believe that incremental growth will be less aggressive and in line with most peers, as the company is obliged to follow best practices and norms to avoid any future problems from the regulator,” Incred Equities said in a note on September 20.

Domestic brokerage house Motilal Oswal highlighted that IIFL Finance may make a strong comeback amid competition from other non-bank lenders but may see some impact on profitability. “We expect IIFL to now make a strong comeback in the gold lending business to regain its market share in the segment. We believe that IIFL could even take pricing actions and compete aggressively (if needed) to accelerate its gold loan growth. While this could have some impact on the segment’s profitability in the near term, it will help IIFL regain its market share from its peers and even some banks,” it said.

The non-bank lender in an exchange filing on September 19 said that the RBI had lifted restrictions imposed on its gold loan business. "The RBI, through its communication dated September 19, 2024, has lifted the restrictions imposed on the gold loan business of the company. The RBI's decision is effective immediately and allows the company to resume the sanctioning, disbursal, assignment, securitisation, and sale of gold loans in compliance with all relevant laws and regulations," IIFL Finance said in a stock exchange filing.

Shares of the gold loan lender were trading at Rs 539.25 on the BSE, up 8.73 percent.

The RBI had slapped the curbs on March 4, 2024 after IIFL fell under regulatory scrutiny following a crackdown on financial firms. The RBI asked the company to stop disbursing gold-backed lending following “material supervisory concerns”. Three local rating agencies - ICRA Ltd, Crisil Ltd and Care Ratings Ltd - put it under watch with negative or developing implications following the ban. International credit assessor Fitch Ratings also put its B+ rating on negative watch.