Fairfax India agrees to give IIFL Finance up to $200 mn liquidity support

NBFC's stock falls another 20% after RBI bars it from disbursing gold loans

IIFL Finance said on Wednesday stakeholder Fairfax India Holdings Corporation has agreed to give it liquidity support after the Reserve Bank of India (RBI) barred the non-banking financial company from giving gold loans.

Fairfax India has a 15.1 per cent stake in IIFL Finance. “The RBI's embargo has raised liquidity concerns amongst the company’s investors and lenders. In response to these concerns, Fairfax India has agreed to invest up to $200 million of liquidity support on terms to be mutually agreed and subject to applicable laws, including regulatory approvals (if any),” said IIFL Finance in a statement.

IIFL Finance is among India’s top two NBFCs in the gold loan business. It has a gold loan portfolio of Rs 24,692 crore which was 32 per cent of its total loans of Rs 77,444 crore at the end of the third quarter of FY24.

"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.

“We are confident that Nirmal and Venkat will take corrective actions to meet and exceed RBI's compliance standards,” said Watsa.

In an interaction with analysts on Tuesday, IIFL Finance managing director Nirmal Jain had said the company is not facing any liquidity issues as it continues collections and recovery from gold loan business.

“Till the issue is resolved we will continue to collect money from repayments. We are adequately covered on liquidity and we do not see any challenges in the foreseeable future. We will also try to cross sell other products from these branches,” Jain said.

IIFL shares fell another 20 per cent on Wednesday after declining 20 per cent yesterday to hit the lower circuit.

“At this crucial juncture, Fairfax India’s and Prem’s generous offer to provide liquidity support is very timely and motivating. We are committed to complying fully with RBI’s directives and growing the business under the regulator’s guidance on the strong foundation of compliance, risk management, and fair practices,” Jain said.