Gold financiers under RBI’s lens: Muthoot, Manappuram Finance slip over 3%
Source: Business Standard
Manappuram Finance share price, Muthoot Share price after RBI directs gold financiers
Muthoot Finance and Manappuram Finance shares declined up to 3.4 per cent intraday on the BSE on Tuesday. The shares slipped after the Reserve Bank of India (RBI), on Monday, found several irregular practices being followed by gold loan financiers.
The RBI observed incorrect application of risk weights, weakness in monitoring of loan-to-value (LTV) ratio, and lack of transparency during auction of gold ornaments and jewellery on default by the customer, among others while lending loans.
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Thus, the Central Bank has directed banks and non-banking financial companies (NBFCs), offering gold loans, to thoroughly review their policies and identify gaps.
On Monday, RBI asked gold loan providers to closely monitor their gold loan portfolios amid significant growth observed in this segment vis-à-vis some lenders.
Through a circular, it also instructed these lenders to ensure adequate controls over outsourced activities and third-party service providers.
“While IIFL Finance was the first among gold lenders to face supervisory action, it might not be the last. In this circular, the RBI has put out a laundry list of deficiencies in the processes of select gold lenders which they are expected to address within three months,” analysts at Motilal Oswal Financial Services said.
Any actions taken by the lenders in this regard have to be informed to the senior supervisory manager (SSM) of the RBI within three months of the date of the circular, the central bank said, adding that non-compliance with regulatory guidelines in this regard will be viewed seriously and will attract, among other things, supervisory action. READ MORE
Following its assessment, the RBI also found certain lenders were rolling over loans at the end of their term by making a partial payment. They also observed that gold loans were not classified as non-performing assets (NPAs) in the system, that they were evergreened by extending outstanding loans or issuing a new loan, that senior management/board supervision was insufficient, and that there were no controls over third-party organisations.
(NPA) is a loan or advance that a borrower does not repay on time, causing the lender to lose income from it.
According to MOFSL, the RBI’s observations are sentimentally negative for the gold lenders.
“For better clarity, we look forward to engaging with the gold lenders to understand the observations made by RBI with regards to their gold lending processes and corrective actions which may be required at their end,” it said.
Those at global brokerage Jefferies, too, said the RBI’s observations and tighter regulatory checks may weigh on the growth in the near-term.
“We expect large NBFCs, like Muthoot Finance, to remain unaffected. IIFL Finance, too, may remain safe as it has already taken corrective steps,” the brokerage reportedly said in its note.
First Published: Oct 01 2024 | 10:18 AM IST
