Shares of IIFL Finance were in the red on Thursday despite the non-banking finance company (NBFC) fixing some of the issues flagged by India’s central bank and clearing the way for a large fundraise.

What Happened: According to the plan outlined by the company, it aims to raise ₹1,500 crore through a fast-track rights issue before the conclusion of June 2024 and another ₹500 crore through non-convertible debentures by the end of this month.

Existing shareholders will be reportedly offered the rights issue at ₹300 per share, in the ratio of one share for every nine shares held, aggregating to ₹1,272 crore when fully subscribed. It is anticipated that Fairfax India and the promoter group, including Nirmal Jain, R Venkataraman and his family, will fully subscribe to their respective shares in the rights issue.

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IIFL has taken steps to address compliance concerns raised by the Reserve Bank of India (RBI), submitting a comprehensive compliance report on Friday, Financial Express reported, citing sources. The company has implemented systemic changes in its operations to rectify key issues flagged by the banking regulator.

IIFL Finance has reportedly addressed all five compliance issues highlighted by the RBI, submitting detailed documentation and evidence to demonstrate the effectiveness of the implemented changes. These changes encompass various aspects, including adherence to loan-to-value ratios, refining the auction process and enhancing transparency in customer charges.

The central bank’s directives directed IIFL Finance to revamp its gold loan operations, particularly in areas related to gold purity assessment, loan disbursement practices and auction procedures. Notably, the NBFC has imposed strict limitations on cash disbursements exceeding ₹20,000 for gold loans and has conducted gold auctions at the taluka level, aligning with RBI directives.

The impact of the regulatory restrictions on IIFL Finance’s gold loan business is significant, with an expected 20-25% decline in earnings per share (EPS). To bolster its financial position, the company’s board is set to convene on March 13 to approve a $200 million equity infusion led by Fairfax India, a move aimed at enhancing liquidity and sustaining growth momentum.

Price Action: IIFL Finance’s share price was down 0.61% at ₹381.80 near the start of trade on Thursday amid broader weakness in the market.

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