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The Reserve Bank of India (RBI) has sent an advisory to gold loan non-banking financial companies (NBFCs) regarding cash disbursal of loans. This advisory comes after concerns were raised about certain large gold loan providing NBFCs not adhering to the Income Tax Act provision on cash disbursement, which states that no NBFC should disburse a loan amount in excess of ₹20,000 in cash.
The advisory letter, sent by the RBI's Department of Supervision, specifically to gold loans financiers like Muthoot and Manappuram Finance, is being viewed as a warning to gold-loan NBFCs to abide by the rules. Earlier in March, the central bank had barred IIFL Finance Ltd. from disbursing gold loans, for violation of cash disbursal norms, among other issued.
The RBI's advisory is expected to have a negative impact on the near-term sentiment for both Manappuram and Muthoot Finance, as it may lead to operational changes and a transient financial impact. Brokerage firm Morgan Stanley believes that gold financiers will have to make operational changes post this move, but does not see any material change in turnaround time as processes are already in place.
As of the December quarter, gold loans formed 84% of Muthoot Finance's Assets Under Management and 51% of Manappuram's. Morgan Stanley estimates that 40% of Manappuram's disbursements happen in cash and nearly 56% of the gold loan business is online, while 40% of Muthoot's gold loans are transacted online. The brokerage firm expects the near-term sentiment to be negative for both Manappuram and Muthoot Finance, but sees a logical case for Manappuram's stock to fare better compared to Muthoot due to less exposure to gold loans.
The fall in share prices of Manappuram Finance and Muthoot Finance on Thursday is a reflection of the market's reaction to the RBI's advisory. It remains to be seen how these companies will respond to the advisory and what impact it will have on their long-term operations.
Source: Manappuram, Muthoot Finance shares fall up to 8% post RBI advisory on cash disbursal