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Following the RBI’s order on the distribution of gold loans, IIFL Finance shares fell 20%; details

<p>Following the Reserve Bank of India’s limits on further penalties and the distribution of gold loans, shares of IIFL Finance Ltd. saw a 20% decline on Tuesday.</p>
<p><img decoding=”async” class=”alignnone wp-image-474090″ src=”https://www.theindiaprint.com/wp-content/uploads/2024/03/theindiaprint.com-following-the-rbis-order-on-the-distribution-of-gold-loans-iifl-finance-shares-fel.jpg” alt=”theindiaprint.com following the rbis order on the distribution of gold loans iifl finance shares fel” width=”999″ height=”749″ title=”Following the RBI's order on the distribution of gold loans, IIFL Finance shares fell 20%; details 6″></p>
<p>As a result of the event, the stock dropped 20% and closed at Rs 478.50 on the BSE.</p>
<p>This is the company’s largest one-day decline since its 2019 demerger. IIFL separated IIFL Wealth Management and IIFL Securities from IIFL Finance in May 2019 to establish three distinct companies.</p>
<p>The management of IIFL Finance said during an analyst call earlier today that there have only been a small number of consumer complaints over the gold loan that has been sent to the Reserve Bank of India. They went on to say that they had asked to meet with the central bank today.</p>
<p>During the results call, the management said that they had taken remedial action in response to the Reserve Bank of India’s concerns, which they received in January.</p>
<p>The management did, however, further clarify that there would be no effect on the company’s recovery process and that there is no prohibition on the sale of gold at auction in order to fund recovery. Neither governance nor KYC problems were included in the RNBI study.</p>
<p>Given that gold loans account for 32% of IIFL’s total assets under management (AUM) and that a sizable amount of the NBFC’s co-lending was in the gold loan market, Motilal Oswal Securities described it as a significant negative setback for the company.</p>
<p>“As these are errors in procedure, the business may collaborate with the regulator to address its findings in the portfolio of gold loans. It is difficult to calculate the impact of this restriction on IIFL’s AUM growth and profitability since it is unclear how long the prohibition may last. Following the March 5 conference call led by the IIFL management, we could consider updating our estimates,” Motilal Oswal Securities said.</p>
<p>However, Motilal Oswal pointed out that IIFL Finance is able to service its current gold loan portfolio via the customary procedures for collection and recovery because of the RBI’s approval.</p>
<p>The results of an examination of the company’s financial standing as of March 2023 were also released by the RBI. In its assessment of IIFL’s gold loan portfolio, the regulator discovered a number of significant supervisory issues, including serious discrepancies in the evaluation of gold and the certification of purity and net weight of gold at the time of loan sanctioning and at the auction after default.</p>
<p>In addition, the RBI discovered violations of the loan-to-value (LTV) ratio, large cash disbursements and collections that were significantly above the statutory limit, disregard for the established auction procedure, and a lack of openness about the fees assessed on client accounts.</p>
<p>Additionally, the regulator said that throughout the previous several months, it had interactions with both the company’s senior management group and statutory auditors. To protect the interests of consumers, however, business limits had to be imposed immediately since there was no sign of any significant remedial effort, according to Motilal Oswal.</p>

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