The call is uploaded on the website but here is some autogenerated summary.
IIFL Call after RBI Action - 5th March 2024
RBI’s Concerns about IIFL Finance’s Gold Loan Portfolio:
Deviations in assesing and certifying gold purity.
Breaches in loan-to-value (LTV) ratios.
Excess cash beyond statutory limits.
Corrective Actions Taken by IIFL Finance:
Minimizing deviations in gold assessment between branches and the audit team.
Implementing stronger systems to ensure compliance with LTV norms.
Aligning cash disbursement practices with the Income Tax Act interpretation.
Ensuring comparability of auctions as per RBI’s circular.
Clarifying the purpose of the ₹200 option notice or option intermission charge.
Operational and Procedural Issues:
Addressing operational and procedural issues with sincerity and effort.
Emphasizing the absence of governance or ethical issues.
Reiterating the company’s solid foundation built on trust and support.
Commitment to Compliance and Transparency:
Taking immediate and comprehensive steps to address RBI’s concerns.
Implementing necessary remedial measures to comply with and exceed regulatory standards.
Navigating the situation with transparency, integrity, and respect for compliance standards and regulations.
Stakeholder Support and Appreciation:
Expressing gratitude and admiration for RBI’s commitment to financial system stability and integrity.
Acknowledging the value of RBI’s guidance and oversight in fostering trust, transparency, and resilience.
Emphasizing the importance of continued support from stakeholders, customers, employees, and partners.
Gold Securitization and Assignments:
Gold remains with the company during securitization and assignments.
Assessment is done by the company.
Assignment partners or co-lending partners have access to data and can audit the gold packets.
Securitization is mostly done through the PTC route, while assignments account for 90% of transactions.
The company has 15 co-lending partners.
Deviations in Gold Weight and Valuation:
Deviations in the net weight of gold between disbursement and auction identified by the audit team.
Deviations found in 55,000 cases, but most of the money has been recovered.
Engaging with RBI to address valuation concerns and requesting a meeting.
RBI has been highlighting valuation observations in previous engagements, and corrective actions are being taken.
Cash Disbursement and Opex:
Cash disbursements have been stopped, but earlier disbursements up to two lakh rupees were happening through cash mode.
Banks are allowed to do cash disbursement up to two lakh rupees, but they can’t do more than one piece.
Monthly opex of the branches for gold is around 65 to 70 crores, and the monthly collection growth on the golden portfolio is more than 135 crores.
RBI’s Inspection Report and Corrective Actions:
Received an inspection report from RBI in January and taking corrective actions.
No other ongoing inspections or inquiries by RBI for any other products.
Planning to revamp processes to address issues identified in the RBI’s inspection report.
No penalties or actions taken by RBI against the company prior to this inspection.
Financial Impact and Gold Loan Portfolio:
Financial impact of RBI’s action is uncertain and depends on the time taken to resolve the issues.
Gold loan business incrementally adds about 5% to the portfolio in a quarter and runs down about 10-12% every month, making it difficult to determine the overall impact on asset quality.
Can anyone who tracks Banking and finance sector tell me has similar things happened in past also with other companies. RBI is looking v strict this time, first Paytm and now IIFL. I am assuming similar cases might have happened in past also where RBI would have taken big actions and later after some time (may be few months or years) they gave some relief to the company or sector. I want to understand if this is a short-term issue which can be fixed, and company can return to normalcy (in few quarters or 1-2 years) or this is going to affect long term fundamentals of the business (just like what happened in Yes bank , not recovered after 7-8 years also).
We all are wise in the hindsight. AIF issue happened with every bank/ nbfc, even HDFC bank had to take an impact for it. Does that mean that HDFC bank is not worth investing? HDFC bank was stopped from issuing credit cards for more than a year, does that mean HDFC bank management was stealing money from credit cards?
I am surprised how fast the people are willing to degrade a management to be dishonest, especially for mid/small cap companies but see similar issues with bigger companies as buying opportunity. People are showing IIFL securities related issues to say that IIFL Finance management is dishonest. By that logic, no one should have bought Bajaj Finance from 2010 until 2023 since Bajaj auto was not doing anything great during that time period.
I am not saying that current problem is a small issue and management should not be questioned about it. But to call the management as Thief/ Dishonest and its investors as stupid is not the right approach. I am personally invested in the company and have been tracking it for several years. I still don’t think that I could find any major red flags in the business until last evening’s notice from RBI. Please look at the FII/ DII holdings, doubled over last two years, even they couldn’t find any issues-
Great job, Sanjeev! I completely agree with you. Nowadays, people tend to leap into things without tapping into the second system of the brain (Courtesy: “Thinking, Fast and Slow” by Daniel K.). It doesn’t necessarily imply that everyone is mistaken; rather, it emphasizes the importance of taking a moment to pause and reflect. The capacity for critical thinking often gets lost in the noise, and individuals may end up making decisions hastily.
Yes, that’s correct. BTW, I have no idea why my comment was flagged and removed from here
Anyways, I have full faith in @Worldlywiseinvestors and I am in awe of his curiosity and his willingness to teach.
I still don’t think that I could find any major red flags in the business until last evening’s notice from RBI. Please look at the FII/ DII holdings, doubled over last two years, even they couldn’t find any issues-
But actually all the domestic institutional investors except Groww exited the scrip in February 2024. I think them institutional investors exiting that too a whole bunch of them is a red flag for us the retail investors, here’s the screenshot from Value-Research:
The blank field does not mean they exited, it means they did not add or sell in the month. And there should be some more transactions from other funds, I am assuming it cant be that only Groww bought and no one else bought or sold any.
Monthly buying and selling I believe will be available to all such websites, and I think it is not available until the 15th of the month.
I’m out with a 17% loss on investment and around 1% loss on total PF. Placed a market sell order at 9:02 and it got executed in 5 mins.
I’ve been trying to keep calm but this is really nerve racking. I had been holding for more than a year. It’s my first time in this kind of situation in 4 years of active investing. I believe there’s still so much we don’t know about how this happened. The management seemed shifty on the call yesterday. Going by the RBI press release, the part that seems essential is:
‘Over the last few months, the RBI has been engaging with the senior management and the statutory auditors of the company on these deficiencies; however, no meaningful corrective action has been evidenced so far.’
Someone did ask why couldn’t this have been prevented, but the answer didn’t seem convincing. It seems they had plenty of time to talk and when that didn’t help, RBI acted. I also feel the RBI has gotten pretty active pretty quick, what with PayTM, this one and JM Financial, which doesn’t really rhyme with how regulators work in India. Perhaps things are changing for the better. But I’d keep my eyes and ears open. I wonder if the entry of a new player is a factor here.
I guess it’s best to talk about the learning from this. I learned not to get careless with any holdings. Charts seem more important now. After learning both funda and technical to some extent and reading a few books, I’m beginning to form a view that what matters is whether you’re making money or not. Nobody cares how you’re doing it. When such an event happens, all the fundas go out the window and you’re left wondering where you went wrong. Markets are not to be trifled with.
This all seems unjust in the short term but I’m trying to focus on the learning.
The blank field does not mean they exited, it means they did not add or sell in the month. And there should be some more transactions from other funds
No, blank fields mean exit, if there were no changes then it will show as shown below, here the example taken is Reliance Industries, see the highlighted parts:
Seems Institutions have better data/decision-making data than us - A hell lot of MFs exited in Feb 2024. I have not exited - tried adding a limit order which did not executed but with Prem Watsa providing more capital I don’t think it’s doomsday yet.
That’s a detailed data, what is the website used? Yes a hell lot of them exited the scrip. Yes Fairfax’s investment is a respite, have to see how it will play out.
We all have our internal biases and we always interpret the data the way we want to interpret it. This table is a perfect example of it. Only top three mentioned names have reported data and they have all increased the stake in February. But people are commenting that everybody else sold while they have not yet reported numbers for Feb month. Just because the site is updated on Feb, doesn’t mean that it has Feb data for all the Mutual funds.
Better to look at Actual volume data for reference, below is the screenshot from Screener.in-
Except Dec end, when AIF related news led to selling, no big volume has exchanged hands in IIFL finance scrip.
In any case, I think two 20%+ corrections over last two days have made the stock very interesting. Company is making 2K per year and is available at 15K market cap. Even if they don’t grow their earnings for next 1-2 years, it is available at an interesting price point.
Disclosure: Already Invested, started adding from today.
Fairfax India to invest up to $200 M into IIFL Finance. This is about liquidity support to IIFL Finance. I am unsure how this will play out but I have added more to my portfolio. I bought some stocks today and will continue to observe for the buying opportunity. There is nothing to loose from 40% DD, I will be happy if it goes down 20% tomorrow.
These are my personal views and not recommend to buy or sell.
Good catch, but that’s reflect in the sell order and there are no buyers. I bought today and order placed within fractions of second since everyone wants to sell but no one wants to buy…
