Fairfax to give $200 million in liquidity support to IIFL Finance

08 Mar 2024 CW Team

We have been long-term investors in the IIFL group of companies and have full trust and confidence in the company's strong management team led by Nirmal Jain and R Venkataraman, said Prem Watsa, chairman of Fairfax India.

Following the Reserve Bank of India's directive to cease gold loan activities due to material supervisory concerns in its portfolio, IIFL Finance has faced significant challenges, witnessing a 36% decline in its share price. As of 12:30 on Wednesday, its shares are trading down by 20%. Nirmal Jain, the managing director and founder of IIFL Finance, affirmed the company's commitment to full compliance with RBI directives while navigating business growth under regulatory guidance. RBI acknowledged the concerns raised regarding IIFL Finance's gold loan portfolio and indicated that corrective measures are underway. However, during an analyst call, IIFL Finance expressed surprise at the swiftness of RBI's actions.

As of December 31, IIFL Finance reported gold loans under management totalling Rs 246.92 trillion, constituting approximately 32% of its total loan assets. Analysts, such as brokerage Jefferies, caution that prolonged restrictions could impact earnings, reduce co-lending income, and potentially elevate the cost of finances. Jefferies estimates that the company's earnings per share (EPS) could decline by over 25-30% if the ban persists for nine months.

RBI has outlined that it will review the restrictions on IIFL Finance after completing a special audit and the company's rectification efforts.

In response to the Reserve Bank of India's directive barring it from disbursing gold loans, IIFL Finance has revealed that its major shareholder, Fairfax India, will extend up to $200 million in liquidity support. With Fairfax India holding approximately 15% stake in IIFL Finance, this move aims to ease liquidity concerns among investors and lenders triggered by the RBI's directive. We have been long-term investors in the IIFL group of companies and have full trust and confidence in the company's strong management team led by Nirmal Jain and R Venkataraman, said Prem Watsa, chairman of Fairfax India. Following the Reserve Bank of India's directive to cease gold loan activities due to material supervisory concerns in its portfolio, IIFL Finance has faced significant challenges, witnessing a 36% decline in its share price. As of 12:30 on Wednesday, its shares are trading down by 20%. Nirmal Jain, the managing director and founder of IIFL Finance, affirmed the company's commitment to full compliance with RBI directives while navigating business growth under regulatory guidance. RBI acknowledged the concerns raised regarding IIFL Finance's gold loan portfolio and indicated that corrective measures are underway. However, during an analyst call, IIFL Finance expressed surprise at the swiftness of RBI's actions. As of December 31, IIFL Finance reported gold loans under management totalling Rs 246.92 trillion, constituting approximately 32% of its total loan assets. Analysts, such as brokerage Jefferies, caution that prolonged restrictions could impact earnings, reduce co-lending income, and potentially elevate the cost of finances. Jefferies estimates that the company's earnings per share (EPS) could decline by over 25-30% if the ban persists for nine months. RBI has outlined that it will review the restrictions on IIFL Finance after completing a special audit and the company's rectification efforts.

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