MUMBAI: After the recent Reserve Bank action on IIFL Finance’s gold loan business, the group is staring at a liquidity crunch as bankers are shy of both releasing the already sanctioned credit lines as well as agreeing to look at fresh sanctions.
On March 4, the Reserve Bank had ordered the company majority owned by the Indian-origin Canadian businessman Prem Watsa to stop sanctioning, disbursing and selling new gold loans, citing "material supervisory concerns" in it’s the gold loan portfolio.
The RBI bank NBFC had around Rs 1,200 crore of line of credit sanctioned and since then, it could draw down only around Rs 570 crore.
IIFL Finance is the second largest gold loan player after Muthoot Finance, with an AUM of Rs 24,692 crore at the end of December 2023. Its gold loan book has grown at a Cagr of 39 percent between 2019 and 2023.
Since the pandemic it has been growing faster and has doubled the branch strength to over 2,700 and serves 56 lahk customers.
The gold loan vertical is the second largest for IIFL with around Rs 24,692 crore of AUM as of December 2023 after the home loan vertical which is about Rs 30,000 crore, but is the most profitable arm of the group founded by Nirmal Jain that also runs a successful microfinance arm with around Rs 15,000 crore of AUM with Rs 500 crore of net income in the December quarter. But as much as 57 percent of the gold loan book is the co-lending model.
Soon after the regulatory ban, the company had canceled a proposed $400 million dollar bond issue plan. But within days of the ban, Watsa agreed to chip in with $200 million of immediate liquidity.
We are not keen to disburse the already sanctioned loan nor looking at fresh sanctions. Let the RBI appointed external audit to be completed, two bankers who wished to be unidentified told The New Indian Express on Monday.
The company did not respond to calls.
Its been learnt that the RBI appointed external auditor has begun the job from April 24 and is likely to be completed over the next three to four weeks.
But one of the bankers said other businesses are running smoothly with already existing liquidity.
It can be noted for instance, that the home finance subsidiary had raised Rs 2,200 crore from the Abudhabi sovereign wealth fund AIDA of which more than Rs 1,200 crore are yet to be deployed. With close to Rs 30,000 crore of AUM this is 37 percent of the group’s revenue and the largest vertical.
But they feel that an indirect victim of the RBI ban is the MSME book which is around Rs 4,000 crore as most of this book was in fact with gold as collateral.
Its top shareholder Fairfax India agreed to provide up to $200 million in liquidity support to assuage liquidity concerns. The company has since raised Rs 500 crore through bonds and is looking to raise Rs 1,272 crore through a rights issue.
The group employs around 40,000 of them 15000 are in the gold loan business.