On March 5th, shares of IIFL Finance tumbled 20%, hitting the lower circuit, following a directive from the Reserve Bank of India (RBI) ordering the company to cease sanctioning or disbursing gold loans immediately due to material supervisory concerns.
In a press release, the RBI invoked its powers under Section 45L(1)(b) of the Reserve Bank of India Act, 1934, instructing IIFL Finance Ltd to halt gold loan operations, including assigning, securitizing, or selling any existing gold loans.
Responding to the RBI’s action, IIFL Finance issued a statement reaffirming its commitment to addressing the RBI’s concerns regarding its gold loan portfolio promptly. The company emphasized its dedication to rectifying any issues identified by the RBI and reiterated its intention to continue providing gold loan services in the best interest of its customers.
Despite the setback, Jefferies maintained a ‘buy’ rating on IIFL Finance, setting a target price of Rs 765 per share. However, Jefferies cautioned that the RBI’s restrictions, pending review after a special audit and rectification process, could negatively impact the company’s earnings, particularly due to the unwinding of gold loans, which constitute 32% of its Assets Under Management (AUM).
The brokerage firm highlighted potential consequences such as a decline in co-lending income and an increase in the cost of funds. Jefferies estimated that if the ban on gold loans persists for nine months, IIFL Finance’s earnings per share (EPS) could be impacted by over 25-30%.
In the previous trading session, IIFL Finance shares closed 3% lower at Rs 598.00 on the National Stock Exchange (NSE). Despite the recent downturn, the non-banking financial company (NBFC) stock has demonstrated resilience, rallying 31% over the past year, outperforming the benchmark Nifty 50 index, which rose by 26% during the same period.
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