IIFL Finance Addresses RBI Concerns on Gold Loan Portfolio, Stock Gains

IIFL Finance share price surged on June 18 after the company announced it had addressed all deficiencies highlighted by the Reserve Bank of India (RBI) concerning its gold loan portfolio. By 10:18 AM on June 18, IIFL Finance shares had risen by 5%, reaching ₹495 each.

"The special audit has been completed, and we now await the RBI’s review and expect positive action soon. The business environment remains healthy, and we are optimistic about the outlook for all our other business segments," Nirmal Jain, Founder, IIFL Finance said in their Q4 investor presentation.

Earlier this year, the RBI directed IIFL Finance to halt the sanctioning, disbursing, and selling of gold loans due to 'material supervisory concerns' within its gold loan portfolio. This action raised liquidity concerns among the company's investors and lenders.

Since gold loans constitute nearly a third of the company's loan assets, IIFL Finance reported a weak performance for the quarter ending in March (Q4FY24). The company's consolidated net profit decreased by 6% year-on-year to ₹430 crore in Q4FY24 due to higher provisions. Meanwhile, net interest income increased by 28% year-on-year to ₹1,121 crore.

After the Q4 results, analysts at Jefferies maintained a 'hold' rating on IIFL Finance, setting a target price of ₹465 per share. They noted that the company's gold assets under management (AUM) declined by 5% sequentially due to the RBI's ban.

"The regulatory action imposing an embargo on fresh gold loans has significantly impacted our business in the last quarter and continues to do so in the current quarter. We have used this opportunity to enhance our compliance, controls, and operations. We believe that we have fully complied with all regulatory requirements and addressed any deficiencies," added Jain of IIFL Finance.

Regarding asset quality, gross non-performing assets (GNPAs) stood at 2.3%, an increase of 48 basis points (bps) year-on-year, while net NPAs were at 1.2%, up 11 bps in Q4FY24. Additionally, the board approved a proposal to raise up to ₹10,000 crore through the private placement of non-convertible debentures, pending shareholder approval.

So far this year, shares of IIFL Finance have declined by 21%, significantly underperforming the benchmark Nifty 50 index, which has risen by 8%.