Stock Market Today: IIFL Finance saw its stock price decline 20% in morning trades on Tuesday as the ban of gold loans has dampened investor sentiments. The share price had declined 20% on Monday also the Reserve Bank of India barred IIFL Finance from disbursing Gold Loans. The IIFL Finance share price is trading at close to ₹382.80 now in the morning trades thereby is down more than 35% compared to closing levels of around ₹596.80 on the BSE on Friday.
Gold loan book forms around 32% of assets under management as per analysts. Jefferies has downgraded the stock to Hold ratings as a ban will hurt profit.
Analysts at Jefferies India Pvt Ltd in their report said that the “RBI’s restriction on disbursing gold loans due to material supervisory concerns should dent earnings due to rapid unwinding of profitable gold loan book (32% of AUM), lower co-lending income and potentially higher CoF (cost of funding)”.
The timing of the lifting of the ban is also uncertain. Analysts at Jefferies assuming that ban stays for 9 months, have cut FY25-26 estimates earnings per share by 26-27% and Return on Equity estimates by 460-480bps. (100 bps make a percent)
Jefferies analysts also expect profit to fall 6% in FY26. They have downgraded IIFL to Hold ratings with a price target of Rs435 based on 1.2x March 26 estimated Book value.
IIFL Finance in its release on 4th March had said that the RBI has directed the Company to cease and desist, with immediate effect, from sanctioning or disbursing gold loans or assigning/securitizing/ selling any of its gold loans.
However, IIFL Finance had highlighted that RBI in the aforesaid press release directed that the Company can continue to service its existing gold loan portfolio through the usual collection and recovery processes.
Jefferies’s report post-IIFL Management interaction highlighted that the RBI flagged non-compliance to the standard auction process as IIFL had moved to an independent e-auction platform for auctioning gold loans, even as gold loan auction needs to be carried out at the “Taluka level”. Management however has indicated that IIFL has already taken corrective measures regarding RBI observations and will now request RBI to conduct a special audit.
The article originally appeared on Livemint.
