IIFL Finance surges over 10% after RBI lifts restrictions on gold loan business

Shares of IIFL Finance rose as much as 13 per cent to Rs 560.60 after the Reserve Bank of India ( RBI ) lifted restrictions on the company' gold loan business. The RBI had imposed restrictions on IIFL for disbursing gold loans on March 4.

"We wish to inform you that the Reserve Bank of India ( RBI ), through its communication dated September 19, 2024, has lifted the restrictions imposed on the gold loan business of IIFL Finance Limited (“the Company”). These restrictions were earlier imposed on March 04, 2024, which prohibited the Company from sanctioning, disbursing, or assigning/securitising/selling any of its gold loans," the company said in a regulatory filing.

IIFL Finance added that RBI 's decision was effective immediately and allows the Company to resume the sanctioning, disbursal, assignment, securitization, and sale of gold loans in compliance with all relevant laws and regulations.

The RBI had ordered IIFL Finance to stop disbursing gold loans with immediate effect, citing "material supervisory concerns".

Following the curbs, the company started a special audit in April as directed by the RBI .

"We expect IIFL to now make a strong comeback in the gold lending business to regain its market share in the segment," analysts at brokerage Motilal Oswal said in a note on Thursday.

"We believe that IIFL could even take pricing actions and compete aggressively (if needed) to accelerate its gold loan growth."

IIFL reported a net loss of Rs 22.66 crore for the quarter ended June 30, compared with a profit of Rs 151 crore a year earlier, hurt by the RBI 's embargo.

Gold loans accounted for 21 per cent of the company's total loan assets, as of June 30, down from 30 per cent as of March-end.

On Friday, peers Muthoot Finance dropped 3 per cent and Manappuram Finance fell as much as about 4 per cent, before paring losses to trade flat.

Investors are assured that IIFL Finance has taken corrective measures and is working towards strengthening compliance, said Kranthi Bathini, director of equity strategy at WealthMills Securities.

"Now that the restrictions are lifted, the company will take about 6-8 months to bounce back and shred the lag effect coupled with rise in gold prices which could help the stock."

(With Reuters inputs)