NEW DELHI: Following the stringent action taken by the Reserve Bank of India (RBI) on IIFL Finance and JM Financial Products Ltd, shares of the two listed companies nosedived on the stock exchanges.
After tanking 20% on Tuesday, shares of IIFL plummeted another 20% (lower circuit) on Wednesday to R382 apiece, its new 52-week low.
In total, shares of IIFL have fallen by 40% in two sessions after the RBI directed the NBFC to cease and desist from sanctioning or disbursing gold loans or assigning/securitising/selling any of its gold loans.
For the Non-Banking Financial Company (NBFC), gold loans are their second-biggest business division. IIFL has a gold loan portfolio of R24,692 crore, which is 32% of its total loan portfolio valued at R77,444 crore at the end of December 31, 2023. Nirmal Jain, managing director of IIFL has reassured investors that there are no governance or ethical issues in the company. “These are operational issues which will be addressed with all our effort and sincerity. We are taking immediate and comprehensive steps to address the concerns made by RBI,” said Jain while speaking to analysts on Tuesday.
Shares of JM Financial cracked up to 20% intraday on Wednesday to hit a low of R 76.40 after the RBI asked the investment banking firm to stop any form of financing against shares and debentures with immediate effect. The shares recovered a bit during the last trading hour to close at R85.50, down 10%.
This crackdown includes the sanction and disbursal of loans against the initial public offer (IPO) of shares as well as against subscriptions to debentures.
JM Financial on Wednesday said it had a careful and detailed review of the Reserve Bank’s order imposing restrictions on the company’s financing business and asserted that there were no material deficiencies in its loan sanctioning process.
IIFL Finance to secure investment of $200 mn
IIFL Finance is securing an investment of up to $200 mn from Fairfax India as liquidity support after the RBI barred the firm from disbursing gold loans. Fairfax holding stood at 15.1% in IIFL Finance as of Dec 2023. Prem Watsa, chairman of Fairfax India, said they have full trust in the company’s management.