Manappuram, Muthoot shares crash up to 9%; what's causing the pain?

Shares of Manappuram Finance Ltd and Muthoot Finance Ltd took a strong beating during the trading session on Thursday after the Reserve Bank of India (RBI) asked the non-finance banking companies (NBFCs) to stick to its rule of cash loan payout limit in a letter.

 

RBI has asked NBFCs to strictly adhere to the cap of Rs 20,000 in cash loans in a letter. This move comes as the central bank is aiming to deter cash transactions. However, the rule is not new but strictness from the central lender took a toll on the lending firms.

 

Muthoot Finance shares crashed about 8.87 per cent to Rs 1,510 on Thursday, compared to its previous close at Rs 1,657.05 on Wednesday. Likewise, Manappuram Finance tumbled to Rs 165.15 for the day, falling more than 8.3 per cent from its previous close at Rs 180.10 apiece.

 

The latest round of strictness from the RBI has hit gold loan and micro-finance NBFCs the most, as the limit is restricted to Rs 20,000 only and only these two categories of loans fall in-line with this range. Market participants believe that it is difficult to quantify the impact of RBI's directive but the companies which are not much tech-savvy will be impacted the most.

 

Global brokerage firm Morgan Stanley believes that gold financiers will have to make operational changes post this move. It sees a transient financial impact and does not see any material change in turnaround time as processes are already in place. The oversea broker expects the near-term sentiment to be negative for both Manappuram and Muthoot Finance.
 

This action comes after the central bank directed IIFL Finance to immediately halt its gold loan operations for new customers due to major lapses in loan handling. Earlier in March, the central bank had barred IIFL Finance from disbursing gold loans, for violation of cash disbursal norms, among other issues.

 

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