Fitch Ratings recently affirmed India-based IIFL Finance Ltd’s long-term issuer default rating (IDR) at “B+,” indicating stable prospects for the company. This rating confirmation came after the Reserve Bank of India (RBI) lifted restrictions on IIFL’s gold-loan business, which had been imposed earlier this year. The affirmation suggests a stable outlook for IIFL’s financial health and reflects confidence that the company can gradually regain stability.
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Background: RBI’s Ban on Gold-Backed Lending
In March 2024, the RBI imposed a temporary ban on IIFL Finance’s gold-backed lending activities. Gold loans are a popular loan product in India, where customers use their gold jewelry as collateral to secure quick financing. IIFL, a major player in this segment, faced significant challenges as the ban impacted its lending operations and revenue stream. However, in September, the RBI lifted this restriction, allowing IIFL to resume its gold-loan activities.
Fitch’s Rating Decision and Its Importance
With the ban lifted, Fitch Ratings decided to reaffirm IIFL’s ratings with a stable outlook. The long-term IDR of “B+” and the medium-term note rating reflect Fitch’s view that IIFL’s overall financial health remains intact despite the setback. The ratings were previously on “Rating Watch Negative” due to the uncertainties surrounding the gold-loan ban, but now Fitch sees a path to recovery.
Gold-Backed Lending Recovery Still Uncertain
Although IIFL can now offer gold-backed loans again, Fitch noted that funding for this segment is still uncertain. Investors and lenders may remain cautious due to the recent ban, and this caution could slow growth in gold lending. Even if gold-loan volume takes time to recover, other segments of IIFL, such as housing finance and microfinance, have shown resilience. This diversity in revenue sources supports IIFL’s overall credit profile.
Strong Performance in Housing Finance and Microfinance
Fitch highlighted that IIFL’s housing finance and microfinance subsidiaries have continued to perform well. Funding and loan growth in these areas have been more stable compared to the gold-loan segment. The solid performance of these subsidiaries is crucial, as they are expected to sustain the company’s overall profitability even if gold-backed lending remains subdued.
Expected Gradual Improvement in Profitability
Fitch expects IIFL’s profitability to recover as lending volumes across its business units strengthen. The ongoing stability in housing finance and microfinance should help offset any potential slowdown in gold-loan revenue. As long as these segments continue to grow, they will underpin IIFL’s group profitability, according to Fitch.
Opinion: Can IIFL Bounce Back Fully?
While Fitch’s stable outlook is a positive sign, IIFL’s path to full recovery will likely depend on how quickly its gold-loan business can regain traction. Investor trust in the gold-loan segment will need rebuilding, and the company may need to prove its resilience further. However, IIFL’s strength in other lending areas shows it is not overly reliant on one product, which should support a steady recovery.
Conclusion: A Cautious but Positive Future
IIFL’s stable rating and the end of the RBI’s ban are encouraging developments for the company. While there may be challenges in rebuilding its gold-loan business, IIFL’s diversified portfolio, especially in housing finance and microfinance, puts it in a strong position. If these sectors continue to perform well, IIFL can maintain its profitability and, potentially, restore full confidence among investors.
