 "Here's why IIFL Finance investors may have terrible Tuesday")
Shares of IIFL Finance may come under heavy selling pressure on Tuesday, March 5, as the Reserve Bank of India (RBI) has debarred the non-banking financial company (NBFC) from sanctioning and disbursing fresh gold loans.
The regulator came down hard on the financier after it observed deviations in assaying and certifying purity and net weight of the gold at the time of sanctioning loans and at the time of auction upon default.
The observations came following an inspection of the company with reference to its financial position as on March 31, 2023.
The regulator also found breaches in the loan-to-value ratio, significant disbursements and collections of loan amount in cash far in excess of the statutory limit, non-adherence to the standard auction process, and lack of transparency in charges on customers.
"These practices, apart from being regulatory violations, also significantly and adversely impact the interest of the customers," the RBI said.
While it had been engaging with the senior management and the statutory auditors of the company, no meaningful corrective action has been evidenced so far, the regulator said.
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Industry estimates suggest IIFL Finance's gold loan market share is 16-17 per cent.
At the end of the third quarter of FY24, IIFL Finance boasted of a gold loan portfolio of Rs 24,692 crore, which is 32 per cent of its loans, valued at Rs 77,444 crore.
Responding to the action, IIFL Finance said the financial impact quantifiable in monetary terms could not be ascertained now.
That said, IIFL Finance is permitted to manage its existing gold loan portfolio using standard collection and recovery procedures.
On the bourses, shares of IIFL Finance closed 4 per cent lower on Monday at Rs 598 on the NSE.
The stock has underperformed the market by declining around 1 per cent so far in CY24 as against around 3 per cent rise in the benchmark Nifty50.