Muthoot, Manappuram Finance shares rally up to 11% after RBI order on IIFL Finance

Shares of Muthoot Finance Ltd and Manappuram Finance Ltd climbed up to 11 per cent each in Tuesday's trade after the Reserve Bank of India (RBI) asked the gold loan firm IIFL Finance to stop sanctioning or disbursing gold loans with immediate effect, citing "certain material supervisory concerns" in the company's gold loan portfolio.

Muthoot Finance shares surged 10.62 per cent to hit a high of Rs 1337.30. Manappuram Finance soared 8.21 per cent to hit a fresh 52-week high of Rs 199. The two stocks gained on hopes IIFL Finance's loss is competitors' gains. Gold loans constitute 32 per cent of IIFL Finance's asset under management (AUM) mix and a large proportion of co-lending done by the NBFC was in the gold loan segment.

Competitive intensity in gold finance from banks and even some NBFCs such as Bajaj Finance has increased over the last six months, Motilal Oswal said on March 1. Despite high competition, gold loan yields improved for Muthoot Finance and Manappuram Finance over the last two quarters, it noted.

Manappuram Finance's standalone cost of borrowings rose 20 basis points in 3QFY24 because of increase in risk weights on bank term loans to NBFCs. It guided that cost of borrowing can rise by another 10-20 bps in 4QFY24. Muthoot Finance also expects an increase in borrowing costs over the next one-two quarters.

"4Q is typically the strongest quarter for gold finance, and with the support of higher gold prices, we anticipate 4QFY24 to be no different," Motilal Oswal said.

Shares of IIFL Financial nosedived 20 per cent to hit a low of Rs 478.50 on BSE.

Muthoot's gross Stage 3 (GS3) continued to remain elevated at 3.8 per cent as on December 2023. This is notable even after the company executed an ARC transaction with a gold loan pool of Rs 700 crore in 2QFY24. In our view, Muthoot might want to further bring down its GS3 by Mar’24 through higher auctions in Q4FY24," Motilal Oswal said.