Fairfax Backs IIFL Finance with $200 mn Post RBI Restrictions

Fairfax India Holdings Corporation, a major shareholder of IIFL Finance Ltd, has agreed to provide up to $200 million (Rs 1,657 crore) in liquidity support to the non-banking financial company (NBFC) after the Reserve Bank of India (RBI) barred it from issuing, giving out, and selling gold loans with immediate effect.

The move is expected to ease the liquidity concerns of investors and lenders that arose after RBI’s directive, which cited “material supervisory concerns” in IIFL Finance’s gold loan portfolio.

“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, which holds around 15 per cent stake in IIFL Finance.

Nirmal Jain, managing director and founder of IIFL Finance, said that the company is committed to complying fully with RBI’s directives and growing the business under the regulator’s guidance.

RBI had said that it had raised concerns about the company’s gold loan portfolio and has been working with the company to address them. However, during an analyst call, IIFL Finance mentioned that RBI’s actions “came as a surprise and were faster than expected.”

As of December 31, IIFL Finance had gold loans under management worth Rs 24,692 crore, accounting for about 32 per cent of its total loan assets. A prolonged restriction could affect earnings, decrease co-lending income, and potentially lead to higher financing costs, according to brokerage firm Jefferies. It estimates that the company’s earnings per share (EPS) could drop by more than 25-30 per cent if the ban continues for nine months.

RBI will review the restrictions on IIFL Finance after completion of a special audit and rectifications by the company.

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