Shares of IIFL Finance witnessed a significant downturn for the second consecutive day, plunging by 20 percent and reaching a 52-week low at Rs 382.80 during early trade.
The decline in IIFL Finance's stock value follows stringent actions taken by the Reserve Bank of India (RBI) against the non-banking financial company (NBFC). The RBI's recent intervention was prompted by the identification of "serious deviations" in the assessment of gold loans utilized as collateral.
Moreover, the RBI highlighted breaches in the maximum permissible loan-to-value ratio, coupled with a lack of transparency regarding customer fees. According to the RBI, these practices not only contravene regulations but also significantly compromise customer interests.
In response to the RBI's measures, IIFL Finance expressed surprise during an analyst call, noting that the regulatory action was swifter than anticipated. However, the company downplayed the immediate impact on profitability, deeming it as potentially insignificant.
Nevertheless, prolonged regulatory restrictions could potentially impact IIFL Finance's earnings, reducing co-lending income and possibly escalating financial expenses, according to brokerage firm Jefferies. Jefferies estimated a decline in IIFL Finance's earnings per share by 25-30 percent if these restrictions persist for nine months.
The RBI has indicated that these regulatory measures will be re-evaluated following a special audit and subsequent rectifications by the company. Amidst these uncertainties, how IIFL Finance navigates through this challenging period and addresses the concerns raised by the RBI remains to be seen.
