Manappuram, Muthoot Finance Shares Tank Up To 9% After RBI’s Cash Disbursal Advisory

Shares of gold financiers Muthoot Finance and Manappuram Finance were down between 8-9 per cent on BSE after the Reserve Bank of India (RBI) sent the companies an advisory concerning cash disbursal of loans.

RBI has asked NBFCs to strictly adhere to the Income Tax Act provision on cash disbursement, CNBC TV-18 reported citing sources. The central bank said that no NBFC should disburse loan amount in excess of Rs 20,000 in cash.

The advisory letter, according to sources, was sent after certain large gold loan providing NBFCs had reached out to the RBI for clarity on cash disbursals. The advisory was sent specifically to gold-loan NBFCs based in Kerala, as per the sources.

The advisory is being viewed as a warning to gold-loan NBFCs to abide by the rules, reported CNBC-TV18. Notably, earlier this year in March, RBI barred IIFL Finance from disbursing gold loans, for violation of cash disbursal norms, among other issues.

George Alexander of Muthoot Finance stated that the bank does not see the advisory as a challenge as they do not foresee any customer denying loan disbursement directly into their bank accounts.

There will be no loss in the number of customers as the management is 100% confident that the central bank’s new norms will not impact Muthoot volumes, Alexander further stated.

Ambit Capital, in a report, said that this development is of concern because NBFCs, which focus on small-ticket loans in rural areas (MFIs, gold loans mostly), are likely to have a higher proportion of disbursals in cash (intuitively).

“Hence, this rule may impact their operations/AUM growth for a brief period,” it said. For NBFCs, which have already invested in technology and processes to transition to digital disbursals, the impact is unlikely to be material, the brokerage added.

Gold loan NBFCs, especially Muthoot Finance may see some impact, according to Ambit analysts. However, they expect the impact on Muthoot to be offset by tailwinds from higher gold prices and market share gains from the IIFL gold loan ban.

“While we do not rule out operational disruptions for the company as it looks to transition small-ticket customers to digital disbursements, we believe there are enough levers to offset this one-time impact,” the brokerage said.

Since the convenience of gold loans is hard to substitute, NBFCs’ edge over banks should prevail, said Ambit as it reiterated a ‘buy’ call on the stock with a target price of Rs 1,808 per share. At 10:18 am, Muthoot Finance shares were trading 4.8 percent down at Rs 1,581.15 apiece on NSE.

Meanwhile, Manappuram Finance shares were trading 5.6 percent lower at Rs 169.80. After the recent drop, the stock has turned negative for the year, while Muthoot is trading up by around 8 percent on a year-to-date basis.

It is worth noting that gold loans formed 84 percent of Muthoot Finance’s Assets Under Management (AUM) and 51 percent of Manappuram’s as of the December 2023 quarter.