In Tuesday’s trading session, shares of IIFL Finance nosedived 20% after the directive from the Reserve Bank of India (RBI) instructing the NBFC to stop sanctioning or disbursing gold loans.
The stock plummeted to a low of Rs 478.50 on the BSE in response to the RBI’s directive, highlighting the market’s immediate reaction to the regulatory intervention.
The RBI, exercising its authority under Section 45L(1)(b) of the Reserve Bank of India Act, 1934, explicitly directed IIFL Finance Ltd to halt all gold loan activities, including the assignment, securitization, or sale of any existing gold loans.
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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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Despite the recent setback, the NBFC’s stock had demonstrated robust performance over the past year, rallying 31%, outperforming the benchmark Nifty 50, which posted a 26% increase during the same period. Investors will be closely monitoring developments as IIFL Finance navigates regulatory compliance and addresses concerns in its gold loan portfolio.
Motilal Oswal on IIFL Finance
Motilal Oswal, in its recent analysis of IIFL Finance, has underscored a major negative setback for the company following the Reserve Bank of India’s directive to immediately halt the disbursement of gold loans.
The report says, Gold loans constitute approximately 32% of IIFL Finance’s Asset Under Management (AUM) mix, and a substantial portion of co-lending activities by the company is concentrated in the gold loan segment.
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Motilal Oswal acknowledges that the issues leading to this regulatory action are process-related lapses, presenting an opportunity for IIFL Finance to collaborate with the regulator in rectifying observations within its gold loan portfolio.
However, the report emphasizes the lack of clarity regarding the duration of the ban, making it challenging to quantify the potential impact on IIFL’s AUM growth and profitability.
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