Shares of the non-banking finance company IIFL Finance experienced a significant downturn, plummeting by 20 percent to Rs 478.50 on the Bombay Stock Exchange (BSE), marking a continuation of its underwhelming performance since the onset of the year.
The decline ensued after the Reserve Bank of India (RBI) imposed restrictions on IIFL Finance, prohibiting it from disbursing and sanctioning gold loans due to identified "serious deviations" in assessing the gold loan collateral. Additionally, the RBI cited breaches in the maximum allowable loan-to-value ratio and a lack of transparency in customer charges.
The central bank articulated concerns regarding the adverse impact of these practices on customer interests, underscoring the necessity for immediate business restrictions in the overall interest of customers. Despite engagements with the company's senior management and statutory auditors to address these deficiencies, the RBI deemed the corrective action insufficient, prompting the imposition of restrictions.
This regulatory intervention triggered the sharpest decline in IIFL Finance's shares since October 2008, reflecting the severity of the situation. In response, during an analysts' call, the company acknowledged the unexpected nature of the regulator's action and expressed confidence that the immediate impact on profitability would not be significant.
As of December 31, 2024, IIFL Finance's gold loans under management amounted to Rs 24,692 crore, constituting 32 percent of its total loan assets.
Brokerage firm Jefferies cautioned that prolonged restrictions could adversely affect earnings, potentially reducing co-lending income and leading to higher financing costs. It is estimated that IIFL Finance's earnings per share could decline by over 25-30 percent if the restrictions persist for nine months.
The RBI indicated that these supervisory restrictions would be subject to review following the completion of a special audit and necessary rectifications by the company.
The road ahead for IIFL Finance remains uncertain as it navigates through this challenging period and endeavors to address the concerns raised by the RBI.
