RBI order asked the company to stop new gold-backed lending and related off-balance-sheet funding transactions.
has placed on 'Rating Watch Negative' following a Reserve Bank's order, which asked the company to stop new gold-backed lending and related off-balance-sheet funding transactions.The ratings agency said the impact of the restrictions will depend on their duration and any spill-over effects on the rest of Finance's business.
will use the watch period, which is typically up to six months, to gather information on the remediation process and the company's broader performance following this event.
The action also reflects downside risk to IIFL Finance's franchise, profitability, and overall risk profile if regulatory restrictions on new gold-backed lending are prolonged.
Gold loans are a key product for the company, accounting for 32% of assets under management and 18% of gross on-book loans in the third quarter of the financial year 2024 (3QFY24).
The restrictions apply to new lending and off-balance-sheet funding activities on gold loans. As such, the company will continue to earn income on its outstanding gold loan portfolio until the balances mature.
"The financial implications of the curbs will depend on the length of the restrictions, balanced against the company's ability to maintain other lending activities, which have not been cited in the ruling," Fitch said.
Source: Stocks-Markets-Economic Times