Financial Regulation Archives - The Sunday Headlines

JM Financial Shares Plummet by 19% After RBI Action, Market Cap Drops by Rs. 1,484 Crore

March 6, 2024March 6, 2024 - by Chirag Goyal

JM Financial Share Price Today: On the Bombay Stock Exchange (BSE), the company’s share dropped by 19.29% to Rs. 77.10, while on the National Stock Exchange (NSE), it was trading at Rs. 77.55, down by 18.75%.

New Delhi: Following the regulatory actions by the Reserve Bank of India (RBI), JM Financial witnessed a decline of more than 19% in its shares on Wednesday. Consequently, its market capitalization dropped by up to Rs. 1,484 crore. The RBI had imposed several restrictions on the company JM Financial Products Limited on Tuesday, after various irregularities were uncovered.

On the BSE, the company’s share fell by 19.29% to Rs. 77.10, while on the NSE, it was trading at Rs. 77.55, marking a decline of 18.75%. Amidst this downturn, the company’s market capitalization reduced to Rs. 7,643.63 crore from Rs. 8,128.16 crore.

The Reserve Bank initiated actions against the company, repeatedly intervening to assist a group of its customers in bidding for various IPOs using borrowed funds.

The central bank has prohibited the non-banking financial company from providing any financial support in the form of shares and debentures, including approval and distribution of loans, along with the initial public offering (IPO) of shares and the approval and distribution of bonds. These restrictions have come into immediate effect.

Business / Main Slide

IIFL Shares Freeze 20% Lower After RBI Bans New Gold Loans

March 5, 2024March 5, 2024 - by Chirag Goyal

The share price of IIFL Finance witnessed a sharp decline of 20%, or Rs 119.6, falling to Rs 478.5 per share as of 9:54 a.m. This drop occurred after the Reserve Bank of India (RBI) imposed a ban on the company from sanctioning or disbursing gold loans, as well as assigning, securitising, or selling any of its gold loans.

Following the RBI’s announcement, IIFL Finance shares were locked in a 20% lower circuit during Tuesday’s trade session on the BSE.

The RBI’s decision stemmed from its inspection of IIFL’s financial position, which revealed significant concerns regarding the company’s gold loan portfolio. These concerns included deviations in assaying and certifying the purity and net weight of gold during loan sanction and auction upon default.

Key concerns highlighted by the RBI’s inspection included breaches in the loan-to-value ratio, excessive cash disbursal and collection beyond statutory limits, non-compliance with standard auction processes, and lack of transparency in customer account charges levied by IIFL.

The ban took immediate effect, although the company is permitted to continue servicing its existing gold loan portfolio through regular collection and recovery procedures.

According to Zee Business Research, IIFL’s gold loan portfolio constitutes 32% of its total portfolio, amounting to Rs 24,700 crore as of December 31. The company collaborates with several banks for gold loans, including DSB Bank, Canara Bank, Union Bank, UCO Bank, South Indian Bank, Karur Vyas Bank, Shivalik Small Finance Bank, and IDBI Bank.

Despite a compound annual growth rate (CAGR) of 30% in gold loans over the past four years, the company’s stance on the ban remains pragmatic. Management clarified during a conference call that while there are no ethical or governance issues with gold loans, the problem lies in procedural and operational matters.

IIFL Finance’s share price performance over the past year has been lackluster, with a modest gain of just over 5% compared to the Nifty50’s rise of over 26%. However, the company has stated that there has been no immediate penalty imposed, and discussions for a special audit with the RBI are underway to address the situation.