IIFL Finance saw its shares plummet by 20 percent for the second consecutive session following the RBI’s decision to prohibit the company from issuing gold loans. As of 9:41 am, shares of IIFL Finance were locked in the lower circuit at Rs 382.20 on the NSE, marking its lowest level in 52 weeks.
In response to the ban, global brokerage firm Jefferies downgraded IIFL Finance from ‘buy’ to ‘hold’ and reduced the target price to Rs 435 per share from Rs 765. This suggests an anticipated further decline of 9 percent after the stock hit a 20 percent lower circuit on March 5.
The Reserve Bank of India (RBI) directed IIFL Finance to halt the sanctioning or disbursing of gold loans following an inspection revealing discrepancies in certain areas of the company’s operations as of March 31, 2023.
Jefferies analysts expressed concerns about the impact of the gold loan ban on IIFL’s profitability, projecting a decline in assets under management (AUM) and gold AUM in FY25. They also slashed FY25-26 earnings per share (EPS) and Return on Equity (RoE) estimates, forecasting a muted EPS compounded annual growth rate (CAGR) and RoE over FY24-26.
Despite engagement between the RBI and the company’s senior management and auditors regarding these deficiencies, no significant corrective actions have been observed thus far, as mentioned in the company’s exchange filing.
It’s noteworthy that the RBI has permitted IIFL Finance to continue servicing its existing gold loan portfolio through regular collection and recovery processes.
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