IIFL Finance Ltd sought to reassure investors on Tuesday, stating that there were no governance issues after the Reserve Bank of India (RBI) prohibited the non-banking financial company (NBFC) from offering loans against gold.
Shares of IIFL Finance opened 20% lower on Tuesday morning as investors reacted to the RBI’s statement on Monday evening detailing some lapses.
Nirmal Jain, managing director, emphasized during a call with analysts on Tuesday that there were no governance or ethical concerns. He clarified that the issues raised were operational in nature and pledged to address them promptly and comprehensively.
One of the issues highlighted by the RBI was breaches in the loan-to-value ratio, leading to questions about whether IIFL accurately assessed the value of gold before granting loans. Some investors and analysts speculated that an aggressive approach by sales executives might have contributed to this. Executives at numerous IIFL branches could have potentially overvalued the gold pledged with the NBFC, allowing for larger loans to customers.
Jain disputed these claims, stating that IIFL’s internal audit team, which evaluates loans that become non-performing assets and go to auction, is typically conservative.
Despite these assurances, concerns remain about IIFL’s profitability and capital-raising plans. With new gold loans currently on hold, the company’s growth and profitability could be impacted. Additionally, questions arise regarding the extent of the issue across the company and its potential effects on overall performance.
For now, IIFL maintains that it does not anticipate any liquidity issues and expects no major impact on profitability. Jain and R. Venkataraman, joint managing director of IIFL Finance, are the company’s promoters.
As the financial year draws to a close, investors and customers are left pondering whether IIFL Finance has lived up to its promises.
