(Bloomberg) -- IIFL Finance Ltd.’s shares surged to their highest in more than six months after India’s central bank lifted restrictions on its gold-backed lending business.
The shares rose as much as 13% in Mumbai trading amid highest single-day volumes this year. The ban lift also prompted Jefferies Financial Group Inc. to upgrade the stock to buy from hold on expectations of profit recovery in the coming years.
With the Reserve Bank of India lifting the ban on gold loans, “disbursement should resume and ramp up steadily,” Jefferies analysts including Bhaskar Basu wrote in a note. “Pressure on earnings, uncertainty around timing of removal of ban has dampened IIFL’s valuations, but this should ease.”
The months-long regulatory ban on the gold loan business put IIFL Finance under strain, raising the risk of a credit rating downgrade, Bloomberg News reported Thursday. Lifting of the curbs should ease the pressure on the shadow lender after it saw a reduction in its headcount as assets under management in the segment more than halved to 121.62 billion rupees ($1.5 billion) as of Aug. 5.
The banking regulator had imposed the restrictions on IIFL Finance amid a crackdown on financial firms in March, following “material supervisory concerns” observed in its portfolio. The RBI had said at the time it would review the restrictions only after a special audit.
“The company is committed to upholding the highest standards of compliance and will continue to ensure that the remedial actions taken are sustained,” IIFL Finance said in the filing after the restrictions were lifted.
(Updates throughout.)
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