IIFL is a leading finance and investment services company in India which mainly focuses on Gold Loans, Business Loans and Personal Loans. It has been operating since 1995 and it is quite big in its space. But recently its shares have been going down continuously for the last 1 week or so after there was a ban on Gold Lending by the Reserve Bank of India.
PC: Google.com
RBI or Reserve Bank of India is cracking or doing some work behind the scenes to find out bad practices for some of the companies whether its Paytm or IIFL. So the issue observed by the RBI is related to deviations in gold appraisal and certification of purity.
In simple terms, for example, person X has lent 22K Jewellery at Rs 10000 to IIFL. And if X has defaulted, then IIFL will sell the same gold for 18K at Rs 12000. That means there is a difference between what they have and what they sell. In this way, there were differences in the gold loan transactions and thus RBI has banned them for Gold Lending.
Because of this ban, the shares have gone down by 36% in the last 5 days and thus it can go down further because the duration of the ban is uncertain as well as it can affect the company's growth and financial performance. So it can take anywhere between today to 6 months before the ban can be lifted.
Now the question is whether we should buy the IIFL shares at the current level. The risk and reward ratio is quite good if you buy now, but again we cannot rule out the risk completely. If the ban continues to go beyond 1 month or 3 months it will affect the IIFL business and thus profit will be reduced drastically.
So I would wait for this month's end, the end of this quarter to see what is the take of RBI in this matter. If the share continues to fall, I can start a SIP below Rs 300 because the reward would be quite good. Now again we should not chase the falling knife, but if we see the fundamentals of the IIFL, it is quite big and thus the ban or temporary ban is just a setback as of now and the share can run again to its ATH. It's not financial advice but still, you can keep it in your wishlist to see if you can invest in it.
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I have a huge loss in DHFL....After then never interested in any financing unit.
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