IIFL Finance shares fall 20%, most since demerger post RBI restrictions on gold loans

Shares of IIFL Finance Ltd. are down in a 20% lower circuit on Tuesday after the Reserve Bank of India imposed restrictions on further sanctions and disbursements of gold loans.

This is the biggest single-day drop for the company since its demerger in 2019. In May 2019, IIFL had demerged IIFL Wealth Management and IIFL Securities from IIFL Finance to create three different entities.

In an analyst call held earlier this morning, IIFL Finance's management said that the number of customer complaints that have gone to the Reserve Bank of India with regards to the gold loan are very few. They further added that they have requested for a meeting with the central bank today itself.

Reserve Bank of India's concerns were received by the company in January and they are taking corrective actions, the management said during the earnings call.

However, the management also clarified that there will be no impact on the company's recovery process and there is no embargo on the auction of gold for recovery either. There were also no governance issues or KYC issues in RNBI's report.

"RBI action may appear harsh in the short term but our biz is built for long life and sometimes these corrective actions are good to help us become stronger," the management said during the call, adding that the impact on profitability in the near-term will not be significant.

Gold Loans are currently 32% of IIFL Finance's overall Assets Under Management (AUM).

On Monday, the RBI had instructed IIFL Finance to stop disbursing gold loans after it observed some material supervisory concerns in the company's gold loan portfolio, including serious deviations in assaying and certifying purity and net weight of the gold at the time of sanction of loans and at the time of auction upon default.

Brokerage firm Jefferies said that if the gold loan lending ban stays for nine months, they estimate an impact of 25% to 30% to the company's Earnings Per Share (EPS).

Shares of IIFL Finance are down 20% at ₹477.75. The stock has a 52-week low of ₹408.05.