This NBFC Nosedives to a 20% LC; What Went Wrong?

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This NBFC Nosedives to a 20% LC; What Went Wrong?
Credit: © Reuters.

By Aayush Khanna

Shares of IIFL Finance Ltd (NS: IIFL ) took a sharp tumble of 20% to hit the lower circuit at INR 477.75 on the NSE during Tuesday's trading session. This came after the Reserve Bank of India (RBI) issued a directive barring the non-banking financial company (NBFC) from approving or disbursing gold loans, or transferring/selling any of its existing gold loan assets.

However, the RBI has permitted IIFL to manage its current gold loan portfolio through regular collection and recovery procedures. Market activity reflected this development, with 2,55,349 equity shares being exchanged, and sell orders for 2.09 crore shares pending on the NSE by 10:12 AM IST.

The RBI's action followed an inspection of IIFL Finance's financial status as of 31 March 2023. The regulator identified discrepancies in assaying and certifying the purity and net weight of gold during loan approval and auction proceedings in case of defaults. Additionally, breaches were noted in loan-to-value ratios, substantial cash transactions exceeding legal limits, non-compliance with standard auction protocols, and lack of transparency in customer charges.

Responding to the RBI's findings, IIFL Finance affirmed its commitment to promptly address the issues outlined and rectify its gold loan portfolio to align with regulatory requirements, as stated in an exchange filing.

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