IIFL Finance shares surge 11% as RBI lifts curbs on gold loan biz

Shares of IIFL Finance Ltd hit the day's high at 11% after the company said the Reserve Bank of India (RBI) has lifted the restrictions imposed on the gold loan business of the company.

Shares of the non-banking financial company (NBFC) opened higher at ₹546.50 on the BSE, up 9.5% from yesterday's closing price and soon hit the ₹560 mark. At the current share price of ₹544.90, the scrip is trading 20.7% down compared to the one-year high of ₹683.78 touched on October 16, 2024, and its m-cap stands at ₹23,974.53 crore. The shares are up 43% from the 52-week low of ₹304.17 touched on March 27, 2024. 

IIFL Finance, in a stock exchange filing, says the RBI, through its communication dated September 19, 2024, has lifted the restrictions imposed on its gold loan business. "These restrictions were earlier imposed on March 04, 2024, which prohibited the Company from sanctioning, disbursing, or assigning/securitising/selling any of its gold loans."

According to the company, the RBI's decision is effective immediately and allows the company to resume the sanctioning, disbursal, assignment, securitisation, and sale of gold loans in compliance with all relevant laws and regulations. “The Company is committed to upholding the highest standards of compliance and will continue to ensure that the remedial actions taken are sustained.” 

The company has not revealed details regarding the RBI's probe into the matter. 

In March this year, the RBI had asked the Mumbai-based financial services company to stop sanctioning and disbursing gold loans as it found certain "material supervisory concerns" in IIFL Finance’s gold loan portfolio.

The company could, however, continue to service its existing gold loan portfolio through the usual collection and recovery processes. 

As per the RBI's initial findings, the issue included serious “deviations in assaying and certifying purity, and the net weight of the gold at the time of sanction of loans and at the time of auction upon default; breaches in loan-to-value ratio; significant disbursal and collection of loan amount in cash far in excess of the statutory limit; non-adherence to the standard auction process; and lack of transparency in charges being levied to customer accounts, etc”. 

According to the central bank, these practices, apart from being regulatory violations, also “significantly and adversely” impact the interest of the customers. 

For the quarter ended June 30, 2024, the company reported net profit after tax of ₹338 crore (before non-controlling interest), down 28% y-o-y. Among core products, home loans and loans against property assets under management AUM grew by 23%. Microfinance grew by 17%, while digital loans grew by 59% y-o-y. Gold loans saw a decline of 33% y-o-y. Overall, the loan AUM grew by 2% to ₹69,610 crore.