IIFL Finance witnessed a notable surge of over 5% in its share price, reaching Rs 495 per share on June 18. This increase followed the company’s announcement that it had rectified all deficiencies highlighted by the Reserve Bank of India (RBI) regarding its gold loan portfolio.
In their Q4 investor presentation, Nirmal Jain, Founder of IIFL Finance, stated, “The special audit has been completed, and we now await the RBI’s review and expect positive action soon. The business environment remains healthy, and we are optimistic about the outlook for all our other business segments.”
Earlier this year, the RBI had directed IIFL Finance to halt the sanctioning, disbursing, and selling of gold loans due to significant supervisory concerns. This directive had raised liquidity concerns among investors and lenders, particularly as gold loans constitute nearly one-third of the company’s loan assets.
The impact of these regulatory actions was evident in IIFL Finance’s weak performance in Q4FY24, with consolidated net profit declining by 6% year-on-year to Rs 430 crore, primarily due to higher provisions. However, net interest income rose by 28% year-on-year to Rs 1,121 crore.
Despite the challenges, the company managed its asset quality with gross non-performing assets (GNPAs) at 2.3%, up by 48 basis points (bps) year-on-year, and net NPAs at 1.2%, up by 11 bps in Q4FY24.
Following the Q4 results, analysts at Jefferies maintained a ‘hold’ rating on IIFL Finance with a target price of Rs 465 per share, noting that the company’s gold assets under management (AUM) had declined by 5% sequentially due to the RBI’s restrictions.
In response to the regulatory scrutiny, IIFL Finance undertook measures to enhance compliance, controls, and operational standards. Jain emphasized, “We believe that we have fully complied with all regulatory requirements and addressed any deficiencies.”
Additionally, the company’s board approved a proposal to raise up to Rs 10,000 crore through the private placement of non-convertible debentures, pending shareholders’ approval.
Year-to-date, IIFL Finance shares have declined by 21%, contrasting with an 8% increase in the benchmark Nifty 50 index.
