Mumbai. Shares of IIFL Finance came under sharp pressure on Thursday after the non-banking financial company (NBFC) informed stock exchanges that the Income Tax Department has directed it to conduct a special audit of its accounts. The stock ended the session down more than 13%, reflecting heightened investor concern over regulatory scrutiny. The sell-off came despite the company reporting robust profit and revenue growth for the December quarter.
In a regulatory filing, the company said it received a communication dated January 21, 2026, instructing it to undertake a special audit for a specified block period under Section 142(2A) of the Income Tax Act, 1961. The order also provides for the appointment of an independent special auditor to assist tax authorities during the assessment process. Following the disclosure, the stock slipped as much as 13.5% intraday.
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Management: Procedural, Not Allegational
Speaking to analysts after the earnings announcement, management clarified that the direction for a special audit should not be interpreted as an allegation, adverse finding, or punitive action. According to the company, such audits are not uncommon for large, diversified financial institutions with high transaction volumes and complex operating structures.
The NBFC added that the special audit forms part of an ongoing income-tax assessment for a multi-year block period and follows an income-tax search conducted in February 2025 under Section 132. Management said the audit report will serve as an input to the assessment process; at this stage, there is no tax demand, penalty, or adjudication. The audit is expected to be completed within 60 days.
The company also disclosed that it has received two orders from the GST Department of Bihar and one from the GST Department of Gujarat. However, it said no material financial impact has been identified from these proceedings so far.
Strong Q3 Performance Underpins Fundamentals
The regulatory development comes alongside a strong operational showing. For the December quarter, IIFL Finance reported a 157% year-on-year jump in consolidated net profit to ₹501.4 crore. Revenue from operations rose 40.3% to ₹3,427.5 crore, while net interest income (NII) surged 61.1% to ₹1,990.2 crore.
The gold-loan business was the primary growth driver. Assets under management (AUM) in this segment climbed 189% year on year to ₹43,432 crore. On a sequential basis, gold-loan AUM increased 26%, reflecting strong demand and the company’s strategic tilt towards secured lending.
AUM in the MSME loan book grew 17% year on year to ₹10,081 crore, supported by a recalibration towards lower-risk, secured products. In contrast, microfinance AUM declined 19% year on year to ₹8,360 crore, weighed down by macroeconomic pressures and a slowdown in unsecured lending.
Asset Quality Improves, Balance Sheet Stays Strong
The company said asset quality continued to improve during the quarter. Gross non-performing assets (GNPAs) declined sequentially by 54 basis points to 1.6%, while net NPAs improved by 27 basis points to 0.8%. On a year-on-year basis, GNPA fell by 82 basis points, pointing to tighter underwriting standards and better collection efficiency.
For the quarter, return on assets (ROA) stood at 2.1% and return on equity (ROE) at 11.3%. Capital adequacy remained comfortable, with a consolidated capital-to-risk weighted assets ratio (CRAR) of 27.7%. Liquidity at the end of December was ₹9,433 crore.
The company incurred a one-time expense of ₹22.5 crore related to the remeasurement of gratuity and leave liabilities following changes under the new labour code. Borrowing costs eased marginally to 9.28%, helping support margins.
Market Focus Shifts to Regulatory Clarity
Market participants said the sharp decline in the stock reflects near-term nervousness rather than a deterioration in fundamentals. While the underlying business performance appears resilient, investors are expected to closely track timelines for the special audit and any observations that may emerge from the process.
For now, management has reiterated that the audit is procedural and does not alter the company’s financial position. Even so, clarity from tax authorities will likely remain the key determinant of investor sentiment and the stock’s direction in the weeks ahead.
About the author — Suvedita Nath is a science student with a growing interest in cybercrime and digital safety. She writes on online activity, cyber threats, and technology-driven risks. Her work focuses on clarity, accuracy, and public awareness.
