According to a report by The Economic Times, IIFL Finance disclosed on Wednesday that its principal shareholder, Fairfax India, intends to extend up to $200 million (equivalent to Rs 1,657 crore) in liquidity support.
This development follows a recent directive from the Reserve Bank of India (RBI) suspending gold loan disbursements. Fairfax India's infusion of funds is intended to assuage concerns among stakeholders and creditors stemming from the RBI's directive.
Prem Watsa, chairman of Fairfax India, expressed confidence in IIFL Finance's management team, led by Nirmal Jain and R Venkataraman, affirming their long-term investment commitment in the IIFL group of companies.
With a stake of approximately 15 percent in IIFL Finance, Fairfax India's move comes in the wake of RBI's instruction to halt gold loan issuance, citing "supervisory concerns" regarding the company's gold loan portfolio.
Following the regulatory action, IIFL Finance witnessed a significant decline in its share price, plummeting by around 36 percent. On Wednesday, its shares were trading down by 20 percent at Rs 382.20.
Nirmal Jain, managing director and founder of IIFL Finance, reiterated the company's dedication to full compliance with RBI's directives while emphasizing a commitment to business expansion under regulatory oversight.
RBI previously expressed apprehensions about IIFL Finance's gold loan portfolio and has been collaborating with the company to address these concerns.
During an analyst call, IIFL Finance acknowledged that RBI's measures were unexpected and were implemented more swiftly than anticipated.
As of December 31, IIFL Finance managed gold loans valued at Rs 24,692 crore, constituting approximately 32 percent of its overall loan portfolio.
A prolonged suspension could impact earnings, reduce co-lending revenue, and potentially elevate financing expenses, according to brokerage firm Jefferies. It estimates a potential decline of over 25-30 percent in the company's earnings per share (EPS) if the moratorium persists for nine months.
