BENGALURU/MUMBAI, September 20, 2024 – Shares of IIFL Finance (IIFL.NS) saw a remarkable 13% increase today, following the Reserve Bank of India’s (RBI) decision to lift a previous ban on the company’s gold loan operations. The stock surged to 560.60 rupees, marking its highest level since late February, though it later adjusted to an 8.5% gain as of 11:34 am IST.
Background of the Ban
In March, the RBI imposed a halt on IIFL Finance’s gold loan business due to “material supervisory concerns,” causing the company’s shares to decline by about 14% in the period following the ban. This restriction forced IIFL Finance to undertake a special audit, which began in April, as part of the RBI’s corrective measures.
Market Reaction
The removal of the restriction has invigorated investor confidence. Analysts from brokerage Motilal Oswal forecast a robust recovery for IIFL Finance in the gold lending sector. They anticipate that the company will aggressively pursue market share, potentially adjusting its pricing strategies to accelerate growth.
Financial Impact
The company’s financial performance was adversely impacted by the RBI’s embargo. IIFL Finance reported a net loss of 226.6 million rupees ($2.71 million) for the quarter ending June 30, a stark contrast to the 1.51 billion rupees profit reported a year earlier. The gold loan segment, which once comprised 30% of the company’s total loan assets at the end of March, dropped to 21% by June 30.
Competitor Response
The news also affected the shares of IIFL Finance’s competitors. Muthoot Finance saw a 3% drop, while Manappuram Finance experienced a decline of about 4% before stabilizing.
Future Outlook
Kranthi Bathini, Director of Equity Strategy at WealthMills Securities, commented that IIFL Finance is now focusing on reinforcing its compliance measures. With the restrictions lifted, the company is expected to take approximately 6-8 months to recover from the setback. The rise in gold prices is anticipated to further support the stock’s recovery.
This development reflects a significant shift for IIFL Finance, signaling potential growth and strategic adjustments in its gold loan sector.
