Fairfax India Holdings Corporation, led by Indian-born Canadian billionaire Prem Watsa, has committed $200 million in liquidity support to IIFL Finance Ltd after the Reserve Bank of India cracked the whip on the lender's gold loan operations.
The RBI on Monday prohibited IIFL Finance from disbursing gold loans with immediate effect citing concerns around certifying purity of the metal and breaches in loan-to-value ratio, among others.
According to a company statement by IIFL, the RBI embargo raised liquidity concerns among investors and lenders. In response to these concerns, Fairfax has agreed to invest up to $200 million liquidity support on mutual terms, subject to regulatory approvals.
“We have been long-term investors in the IIFL Group and have full trust and confidence in the company’s management team led by Nirmal Jain and R Venkataraman. We are confident the duo will take corrective actions to meet RBI’s compliance standards,” Watsa said in the statement.
The commitment comes even as Fairfax has been on a monetisation spree from its India portfolio. It also sold a 5.6% stake in IIFL Finance for about Rs 1,198 crore ($144 million) in December 2023, six months after it divested a small portion from the NBFC for around Rs 250 crore.
Fairfax held a 22.25% stake in IIFL Finance at the start of 2023. It held 15.12% at the end of 2023, stock-exchange data show.
IIFL is a key player in the small-ticket gold, home and business loan market with assets under management worth Rs 78,000 crore. The RBI’s ban sent IIFL’s stock in a downward spiral. The company’s shares have eroded nearly 60% due to the gold loan ban, falling by the maximum limit of 20% for the third straight session on Wednesday. The NBFC's shares were trading at Rs 382 apiece on the BSE in mid-day trade on Wednesday.
“At this crucial juncture, Fairfax India and Prem’s (Watsa) offer to provide liquidity support is timely. We are committed to complying with RBI’s directives and growing the business under the regulator’s guidance on compliance, risk management and fair practices,” said Nirmal Jain, founder and managing director of IIFL Finance.
