DAMAGE CONTROL

IT does not envisage any liquidity issues and there would be no major impact on profitability

DESPITE these clarifications, some analysts flag challenges for the company

IIFL Finance for several months. Since no meaningful action was noticed, regulatory action was taken.

“Steps taken by RBI may be a bit hard. Have taken corrective action to ensure differences between branches and audit team is minimal,” Jain said.

On the issue of “significant disbursal and collection of loan amount in cash far in excess of the statutory limit”, Jain said IIFL has been disbursing and collecting gold loans in cash up to ₹2 lakh of ticket size, which according to RBI’s view was over and above the statutory limits of ₹20,000 as per the Income Tax Act.

Despite these clarifications, some analysts flag two big challenges for the company. First, no disbursal of new gold loans implies that profitability growth of IIFL will be challenged. Gold loans are the second-biggest business division, totalling 32%, just a shade less than 33% of home loans offered by IIFL Finance, as of 31 December 2023.

Second, capital raising plans as shared by the management could take a hit.

“Investors are worried about how pervasive this practice was across the company or if it was limited to some branches. Regardless, when you cannot do new business for one of the largest and fastest growing business units, then it is a no-brainer that overall growth and profitability will be hit,” said a Delhibased executive with an alternate finance firm requesting anonymity.

For now, IIFL maintains it does not envisage any liquidity issues and there would be no major impact on profitability.

Jain and R. Venkataraman, joint managing director of IIFL Finance, are promoters of the company, owning 24.8% while institutional investors own 54% and retail investors, 21.2% at the end of December. Fairfax and Capital Group are the biggest institutional investors with 15.1% and 7.9%, respectively.