Prem Watsa to IIFL's rescue: Fairfax agrees to invest up to $200 mn in liquidity support

Fairfax India Holdings Corporation has announced its commitment to provide liquidity support amidst the RBI embargo on the company's gold loan disbursements. "The RBI's embargo has raised liquidity concerns amongst the company’s investors and lenders. In response to these concerns, Fairfax India has agreed to invest up to $200 million of liquidity support on terms to be mutually agreed and subject to applicable laws, including regulatory approvals (if any)," the firm said in a statement.

"We have been long-term investors in the IIFL group of companies and have full trust and confidence in the company's strong management team led by Nirmal Jain and R Venkataraman. We are confident that Nirmal and Venkat will take corrective actions to meet and exceed RBI's compliance standards,” said Prem Watsa, Chairman of Fairfax India.

Shares of IIFL Finance crashed for the second consecutive day after hitting its 20 per cent lower circuit on Wednesday. IIFL Finance shares declined 20 per cent to Rs 382.80 in early trade, hitting a 52-week low.

RBI took action against the NBFC citing "serious deviations" in the evaluation of gold loans used as collateral. The regulator also indicated that there were breaches in the maximum allowed loan-to-value ratio, along with a lack of transparency regarding fees charged to customers. “These practices, apart from being regulatory violations, also significantly and adversely impact the interest of the customers,” said RBI.

However, the company said in an analyst call on Tuesday that RBI's action “came as a surprise and was quicker than expected”. They added that the immediate impact on profitability should not be “significant”.

Following the RBI's action against IIFL Finance, brokerage firm Jefferies said prolonged restrictions could impact earnings and lower co-lending income. Moreover, the brokerage indicated the possibility of increased financial costs.