By Siddhi Nayak and Rama Venkat

BENGALURU (Reuters) -India's IIFL Finance sank 20% on Tuesday after the country's central bank barred the non-banking finance company from offering gold loans, raising concerns about the action's impact on one of the company's largest earning assets.

The Reserve Bank of India (RBI) late on Monday flagged "serious deviations" in assessing the gold taken as collateral, breaches in the maximum permitted loan-to-value ratio, and a lack of transparency in charges levied to customers.

IIFL Finance's shares were at the bottom of an exchange-imposed trading band and were set for their worst session since October 2008.

The regulator's action "came as a surprise and was quicker than we expected," the company, which also provides home loans, said in a call with analysts and investors on Tuesday.

The RBI highlighted concerns about IIFL's gold loan portfolio in previous meetings and the company has been taking corrective action, it said, adding that the immediate impact on profitability should not be "significant".

IIFL Finance's gold loans under management stood at 246.92 billion rupees (around $3 billion) as on Dec. 31, accounting for 32% of total loan assets.

A prolonged restriction could impact earnings, lower co-lending income, and there could potentially be higher cost of finances, brokerage Jefferies said in a note.

The brokerage estimates earnings per share to fall over 25%-30% if the ban stays for nine months.

Meanwhile, shares of rivals Manappuram Finance and Muthoot Finance jumped 7% and 9%, respectively.

Manappuram Finance had gold loans under management of 199 billion rupees as on Dec. 31, while Muthoot Finance had 692.21 billion rupees.

The central bank will review the restrictions on IIFL Finance after completion of a special audit and rectifications by the company, it said on Monday.

($1 = 82.9200 Indian rupees)

(Reporting by Rama Venkat in Bengaluru; Editing by Varun H K)