IIFL Finance shares are down 20% after an RBI directive regarding gold loans

In an order dated March 4, the RBI ordered IIFL Finance to immediately cease authorizing and disbursing gold loans. The decision also prohibited any downwelling, assignment, or securitization of loans.

“We think this is a significant setback for IIFL since a significant amount of the company’s co-lending was in the gold loan area, and gold loans make up 32% of its AUM mix. According to a report from Motilal Oswal Financial Services, “the company can collaborate with the regulator to address its observations in the gold loan portfolio, as these are process-related lapses.”

It is difficult to estimate the impact of this prohibition on IIFL’s AUM growth and profitability since it is unclear how long it could stay in place, the statement said.

Tuesday, in response to the RBI directive, IIFL Finance shares fell below the 20% mark. The share price has dropped by 20% to Rs 478.50.

The results of an examination of the company’s financial standing as of March 2023 were also released by the RBI. According to Motilal Oswal Financial Services, the regulator discovered some significant supervisory issues with IIFL’s gold loan portfolio. These issues included significant discrepancies in the evaluation of the gold, as well as in the certification of purity and net weight of the gold at the time of loan sanctioning and the auction following default.