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This move is likely to quell liquidity concerns among investors and lenders which were raised after RBI’s directive.
ALSO READ: RBI bars IIFL Fin from sanctioning gold loans for supervisory concerns that ‘significantly, adversely’ affect customers
“We have been long-term investors in the IIFL group of companies and have full trust and confidence in the company’s strong management team led by Nirmal Jain and R Venkataraman,” said Prem Watsa, chairman of Fairfax India.
Fairfax India holds around 15 per cent stake in IIFL Finance.
The central bank had asked IIFL Finance to ‘cease and desist’ from sanctioning, disbursing and selling gold loans with immediate effect, citing “material supervisory concerns” in its gold loan portfolio. Since then, the company has seen its share price lose around 36 per cent. As of 12:30 on Wednesday, the shares of IIFL Finance were trading with cuts of 20 per cent. “We are committed to complying fully with RBI’s directives and growing the business under the regulator’s guidance,” said Nirmal Jain, managing director and founder of IIFL Finance.
RBI said the concerns it spotted in the gold loan portfolio were raised with the company and that it has been taking corrective measures.
However, in an analyst call, IIFL Finance said that RBI’s actions ‘came as a surprise and was quicker than expected.’
IIFL Finance’s gold loans under management stood at Rs 24,692 crore as of December 31. They account for around 32 per cent of total loan assets.
A prolonged restriction could impact earnings, lower co-lending income, and there could potentially be higher cost of finances, brokerage Jefferies said in a note. It estimates the company’s EPS to fall over 25-30 per cent should the ban stay for nine months.
RBI will review the restrictions on IIFL Finance after completion of a special audit and rectifications by the company.
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