The stock prices of IIFL Finance fell by 20% to ₹478.50 on Tuesday due to the Reserve Bank of India (RBI) directing the company to stop sanctioning and disbursing gold loans immediately. The RBI took this step due to supervisory concerns regarding IIFL Finance’s gold loan portfolio.
Under Section 45L(1)(b) of the Reserve Bank of India Act, 1934, the RBI instructed IIFL Finance Ltd to halt issuing gold loans and stop transferring, securing, or selling any of its existing gold loans.
In response, IIFL Finance released a statement affirming its commitment to address the RBI’s concerns regarding its gold loan portfolio. The company pledged to rectify the issues highlighted by the RBI promptly and assured its customers of continued gold loan services.
Despite the regulatory action, Jefferies, an international investment firm, has maintained a ‘buy’ rating on IIFL Finance, with a target share price of ₹765. However, Jefferies acknowledges the potential negative impact on the company’s earnings as a result of the RBI’s restrictions, pending a special audit and corrective measures.
The RBI’s restrictions can lead to reduced co-lending income and higher funding costs for IIFL Finance. Jefferies estimates that if the ban on gold loans continues for nine months, the company’s earnings per share (EPS) could decrease significantly by 25-30%.
While facing regulatory challenges, IIFL Finance reported a 29% increase in net profit to ₹545 crore for the December quarter, attributed to higher loan sales and interest earnings. The company’s total loan portfolio expanded by 34% to ₹77,444 crore, with substantial growth in gold and home loans.
Additionally, IIFL Finance saw an enhancement in asset quality, with the gross non-performing assets ratio decreasing to 1.7% and the net non-performing assets ratio dropping to 0.9%. Nirmal Jain, the company’s founder, emphasized these positive developments amid the regulatory hurdles.
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