The Aryavarth Express
Agency (Mumbai): According to a news report by Reuters, IIFL Finance is facing significant liquidity challenges as banks have become cautious in their lending following the Reserve Bank of India’s (RBI) crackdown on its gold loan business. A senior official at IIFL, who wished to remain anonymous, revealed that banks have stopped sanctioning new credit lines and are not disbursing funds from already approved limits.
The RBI’s sanctions, announced in early March, were aimed at addressing “material supervisory concerns” observed in IIFL’s gold loan portfolio. This regulatory action prompted IIFL Finance to abort a planned $400 million bond fundraising effort. In response to the liquidity crisis, Fairfax India, IIFL’s largest shareholder, agreed to provide up to $200 million to help stabilize the firm’s financial position.
Since then, IIFL Finance has managed to raise 5 billion rupees ($60 million) through bond issuances and is planning a 12.72 billion rupee rights issue to further bolster its finances. A state-run bank official mentioned, “Banks are currently in a wait-and-watch mode, waiting for the regulatory issues to be resolved before increasing their exposure to IIFL.”
Co-lending agreements, which are typically used by banks to mitigate credit risks, have been paused, and there is a general reluctance to provide term loans until the RBI’s restrictions are lifted. As of the end of December, bank borrowings constituted 57% of IIFL’s total debt.
The liquidity concerns have been exacerbated by the need to support other business areas within the company, leading to a faster-than-anticipated drawdown of available funds. IIFL Finance reported having 40.35 billion rupees in unencumbered cash and liquid assets as of March 5, according to ICRA, a rating agency.
Banks, especially those under increased regulatory scrutiny, are hesitant to lend to firms facing compliance issues. “With regulatory scrutiny on banks intensifying, we prefer to pause lending until there is clarity on IIFL’s compliance and business restart plans,” stated another banker involved in the matter.
IIFL Finance has yet to comment on these developments. The financial community and regulatory bodies are closely monitoring the situation, awaiting further updates from the company and the RBI.
