Muthoot, Manappuram Finance fall over 8% on RBI's advisory on cash disbursal; here's what it means for gold financiers
Muthoot Finance, and Manappuram Finance - were trading under pressure on Thursday after the Reserve Bank of India (RBI) sent the companies an advisory concerning cash disbursal of loans. The RBI has instructed Non-Banking Financial Companies (NBFCs) to strictly follow the provisions of the Income Tax Act regarding cash disbursement of loans. Specifically, NBFCs are not allowed to disburse loan amounts exceeding ₹20,000 in cash.
This directive was issued after some large gold loan-providing NBFCs sought clarification from the RBI regarding cash disbursals. The move aligns with the central bank's efforts to discourage cash transactions, although the rule itself is not new. However, the stricter enforcement by the central bank has affected lending firms.
Earlier this year, in March, the RBI barred IIFL Finance from disbursing gold loans due to violations of cash disbursal norms and other issues. Manappuram Finance stock fell as much as 8.3 percent in intra-day deals today to its low of ₹180.10. Meanwhile, Muthoot Finance lost as much as 8.8 percent to fall to ₹1,510.
After the recent drop, the Manappuram 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. According to Ambit Capital, the RBI's directive on cash disbursement of loans may pose challenges for NBFCs that focus on small-ticket loans in rural areas, such as microfinance institutions (MFIs) and gold loan providers.
Read more on livemint.com
