After RBI action, Fitch puts IIFL Finance on negative rating watch

Rating agency IIFL blow: Rating agency Fitch has placed IIFL Finance's 'B+' long-term issuer default rating and medium-term note programme rating on negative watch. The move by Fitch is in the wake of Reserve Bank of India (RBI) having recently barred the non-banking finance company from offering gold loans, owing to material supervisory concerns. Besides, the Securities and Exchange Board of India (SEBI) had also pulled up ratings agencies to act sternly against IIFL. 

"The move reflects a downside risk to IIFL Finance's franchise, profitability and overall risk profile if regulatory restrictions on new gold-backed lending are prolonged," Fitch said in a note. The long-term impact will depend on the duration for which the restrictions will have a spill-over effect on the rest of IIFL Finance's business, Fitch said.

The company's gold loans under management stood at around $3 billion as of December 31, accounting for 32 per cent of total loan assets. IIFL Finance said on Wednesday it would raise funds of up to $241.5 million to shore up its capital, in addition to up to $200 million in liquidity support from top shareholder Fairfax India. The company's shares have tumbled nearly 38 per cent  since the Reserve Bank of India placed the restrictions on March 4. The stock settled 3.5 per cent lower on Thursday.