 "A K Purwar, chairman and independent director, IIFL Finance")
Rating agency ICRA today placed the long-term ratings of IIFL Finance Ltd on watch with negative implications due to the uncertainty pertaining to the period of the ban on its gold loan business and the likely impact.
On March 4, 2024, the Reserve Bank of India had debarred IIFL Finance, a non-banking financial company (NBFC), from sanctioning and disbursing fresh gold loans following “material supervisory concerns” and to protect the interests of customers with immediate effect.
ICRA in a statement said it will continue to monitor the developments closely and will take appropriate rating action based on the resolution of the regulatory directives and its impact on the Group’s credit risk profile. With the restrictions on lending in the gold segment, the Group’s profitability is likely to be negatively impacted, depending on the duration of the ban.
The board of IIFL Finance is scheduled to meet on March 13, 2024, to evaluate the raising of funds through various avenues, including equity, which could help shore up its Tier 1 capital. IIFL Finance’s standalone Tier 1 capital stood at 12.5 per cent as of December 31, 2023.
The management of IIFL Finance has conveyed that the Reserve Bank of India’s observations are process-related and operational and the company has already taken corrective actions and complied with these observations. Further, it has strengthened its processes and can resume the gold loan business as soon as the ban is lifted by the Reserve Bank of India, ICRA said.
Any impact on IIFL Finance’s financial flexibility and ability to raise funds could have a bearing on the growth in the other segments, including fund-raising by the Group companies, i.e. IIFL Home Finance and IIFL Samasta Finance.
Gold loans accounted for 32 per cent (Rs 24,692 crore) of the overall consolidated assets under management (AUM) of the IIFL Finance Group and 79 per cent of the standalone AUM of IIFL Finance as of December 31, 2023, ICRA said.
