Shares of IIFL Finance tanked 20 percent on March 5 to hit the lower circuit, a day after the Reserve Bank of India (RBI) asked the company to stop sanctioning or disbursing gold loans with immediate effect on certain material supervisory concerns.
"The Reserve Bank of India, in exercise of its powers under Section 45L(1)(b) of the Reserve Bank of India Act, 1934, directed IIFL Finance Ltd to cease and desist, with immediate effect, from sanctioning or disbursing gold loans or assigning/ securitising/ selling any of its gold loans," the RBI said in a press release.
Issuing a clarification on the action, IIFL Finance said, "We reaffirm our commitment to rectify observations of the RBI in the gold loan portfolio to comply with RBI findings at the earliest and will continue with our endeavour to provide gold loan services in the overall interest of customers".
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The gold loan portfolio of IIFL Finance in the October-December quarter grew 35 percent on-year to Rs 24,692 crore. The company provides gold loans through 2,721 towns/cities across 25 states and four Union Territories to salaried, self-employed, and MSME customer segment.
Following the RBI action, Jefferies maintained a 'buy' call on IIFL Finance with a target price of Rs 765 per share. The RBI imposed restrictions, subject to review after a special audit and rectification process, may adversely affect its earnings, particularly through the unwinding of gold loans, which constitute 32 percent of the company's Assets Under Management (AUM), the brokerage said.
The limitations could lead to a decline in co-lending income and potentially increase the cost of funds. Jefferies estimates that if the ban on gold loan persists for nine months, IIFL Finance's EPS impact could exceed 25-30 percent.
Also Read | Material supervisory concerns: RBI asks IIFL Finance to stop giving fresh gold loans with immediate effect
In the previous session, IIFL Finance shares closed 3 percent lower at Rs 598.00 on the National Stock Exchange (NSE). The non-banking financial company (NBFC) stock has rallied 31 percent in the last one year, outperforming benchmark Nifty 50 which has risen 26 percent during this period.
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