MUMBAI: After the recent Reserve Bank action on IIFL Finance’s gold loan business, the group is staring at 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 RBI 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 its gold loan portfolio. Right before the RBI, the NBFC had nearly Rs 1,200 crore of line of credit sanctioned and since then it could draw down only 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% 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 nearly 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 about Rs 15,000 crore of AUM with Rs 500 crore of net income in the December quarter. But as much as 57% of the gold loan book is the co-lending model.
Soon after the regulatory ban, the company had cancelled 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 this newspaper.
The company didn’t respond to calls. It’s 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. One of the bankers said other businesses are running smoothly with already existing liquidity.
RBI appointed auditor to complete audit in 3-4 weeks
It has been learnt that the RBI-appointed external auditor has begun the job from April 24 and it is likely to be completed over the next three to four weeks. One of the bankers said other businesses are running smoothly with already existing liquidity. IIFL Finance is the second-largest gold loan player after Muthoot Finance, with an AUM of `24,692 crore at the end of December 2023. Its gold loan book grew at a CAGR of 39% between 2019 and 2023.