Following stringent action by the Reserve Bank of India (RBI) on IIFL Finance and JM Financial Products Ltd, shares of the two listed companies have nosedived on the stock exchanges.
After tanking 20% on Tuesday, shares of IIFL plummeted another 20% (lower circuit) on Wednesday to Rs 382 apiece, its new 52-week low. In total, shares of IIFL have fallen by 40% in two sessions after the RBI directed the NBFC to cease and desist from sanctioning or disbursing gold loans or assigning/securitising/selling any of its gold loans.
The decision came after an inspection of the company by the RBI as of March 31, 2023, which revealed discrepancies in the company’s functioning in certain areas.
“Certain material supervisory concerns were observed in the gold loan portfolio of the company, including serious deviations in assaying and certifying purity and net weight of gold at the time of loan sanctions, breaches of loan-to-value ratio, and significant disbursal and collection of loan amount in cash far in excess of the statutory limit,” the company filing said quoting the RBI’s order.
Global brokerage firm Jefferies downgraded IIFL ‘hold’ from ‘buy’ and slashed the target price to Rs 435 per share from Rs 765.
Jefferies said that the gold loan ban is expected to hurt IIFL’s profit. “The RBI’s order can dent earnings due to rapid unwinding of profitable gold loan book. Given the time of lifting of the ban is uncertain and we assume that the ban would stay for 9 months, we expect assets under management (AUM) to fall 1% YoY and 51% YoY fall in gold AUM in FY25,” the brokerage firm noted.
