Manappuram Finance: Long-term potential holds despite disappointing Q3

But Manappuram is no longer just about gold. Since 2014, the company has aggressively expanded into other lending segments. Non-gold loans now make up 45% of its book—half of which comes from microfinance.

That shift has created a stark disconnect between gold prices and the company’s performance. Gold has surged 38% in the past year. Manappuram’s stock? Down 6%. In fact, while gold price had appreciated by 1.4% in Q3FY25, Manappuram’s stock corrected by as much as 13% on Friday eafter its Q3 earnings disappointed markets.

Microfinance weighs on Q3

Manappuram’s assets under management (AUM) grew 9.5% year-over-year to ₹44,200 crore in Q3FY25. The drag? Microfinance, which accounts for 21% of AUM, shrank 13%.

By contrast, gold loans—its core business—grew nearly 19%. Other non-gold loan segments expanded too, albeit from a smaller base. Excluding its microfinance arm, Asirvad, AUM saw a healthier 18.7% year-on-year jump.

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Profitability took a hit as well. Excluding Asirvad, consolidated net profit declined 2% sequentially to ₹467 crore. However, including Asirvad, profit after tax plunged 51% to ₹279 crore.

Bad loans ticked up. Standalone gross non-performing assets (NPAs) rose from 2% to 2.5%, while net NPAs climbed from 1.8% to 2.3% in Q3. As a result, consolidated provisions rose a massive 271% year-on-year. Auctions increased as Manappuram sought to recover bad loans, reducing its gold holdings to 57.3 tonnes from 58.2 tonnes a year earlier.

Adding to the pressure, borrowing costs inched higher, rising from 9.1% last year to 9.4%. Despite stable gold loan yields at 22.7% and a 5% increase in net interest income, profitability took a hit. Return on equity (ROE) and return on assets (ROA) slumped to 9% and 2%, respectively, down from 21% and 5% a year earlier.

Regulatory crackdown

Regulatory clampdown is adding uncertainty to gold financiers.

The Reserve Bank of India (RBI) recently flagged several compliance violations among gold financiers, including Bank of Baroda and IL&FS. Infractions ranged from inflated loan books and misvaluation of collateral to opaque gold auctions where customers did not receive their dues.

Read this | Brisk growth in gold loans likely behind RBI warning

The biggest concern? Loan-to-value (LTV) ratios. The RBI had temporarily raised the LTV cap from 75% to 90% during the pandemic but rolled it back in March 2021. Some lenders continue to breach the limit—leaving them vulnerable if gold prices dip, as seen in 2013.

The RBI is also pushing for a transition from bullet repayment loans—where stress can accumulate unnoticed—to equated monthly instalment (EMI)-based repayment structures. Lenders have been given three months to implement corrective measures, and even the finance minister has warned against non-compliant gold auctions. This regulatory shift toward tighter risk controls likely contributed to the sector’s slower growth and higher provisioning in Q3.

For Manappuram, the impact was swift. When the RBI ordered its microfinance arm, Asirvad, to halt loan sanctions and disbursals, the company’s stock tumbled 30% from its July peak within three months. However, a similar sanction on rival IIFL soon after helped Manappuram regain most of its losses over the following quarter.

Mounting competive pressure

Even as regulators tighten their grip, competition is heating up.

The gold loan market has expanded rapidly, drawing fierce competition from both banks and unorganized lenders, who still control 65% of the segment.

Recent surges in gold prices and loan demand have further intensified competition. Gold loans inherently carry lower NPAs due to their short tenors—typically less than a year—and the emotional value borrowers attach to their pledged jewellery. This has made the segment attractive not just to NBFCs but also to banks, which are increasingly vying for market share.

Unorganized lenders maintain a strong foothold, particularly in rural areas where formal banking access is limited. Their familiarity with local borrowers gives them a relationship-driven advantage.

Meanwhile, banks, with their lower funding costs, are leveraging their rural presence—primarily through agricultural lending—to cross-sell gold loans at more competitive rates, undercutting NBFCs.

That said, NBFCs have their own strengths. They operate with lower branch setup costs, allowing for faster rural expansion. Their specialization in gold lending also enables them to offer quicker loan disbursals, more flexible working hours, and in-house gold valuation expertise—factors that make them a preferred choice for emergency, last-resort borrowers.

Among organized gold-loan NBFCs, Manappuram ranks second only to Muthoot Finance. Since FY19, it has consistently traded at a lower book-value multiple (1.2x) compared to Muthoot’s 3.35x. The discount reflects concerns over borrower quality, given Manappuram’s higher reliance on unsecured microfinance loans, while Muthoot remains more focused on low-NPA gold loans.

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Another contributing factor is Manappuram’s shift towards shorter tenor loans. While this reduces gold price and yield risk, it leads to faster appearance of bad loans on its books. Additionally, Muthoot enjoys a more geographically diversified loan book, with 53% of its portfolio outside South India, compared to Manappuram’s 37%.

Tailwinds for growth

Despite the challenges, structural tailwinds favour gold lenders.

India’s deep-rooted affinity for gold is well established. The country holds the world’s largest private gold reserves, with two-thirds of it in rural households. As a result, gold loans are among the most widely adopted lending products, with the market tripling to ₹6 trillion over the past decade.

importantly, gold lending thrives in times of uncertainty. When global risks rise—such as those stemming from US policy shifts—gold prices tend to surge as investors seek safe-haven assets. This trend has been amplified recently, as central banks pivot away from US Treasuries in favour of gold, while currency depreciation has further inflated the metal’s landed price in India.

Rising gold prices enhance collateral values, reduce loan-to-value (LTV) ratios, and create room for additional lending. Additionally, recoveries and auctions are more favourable when gold prices are on the upswing. On the borrower side, economic volatility spurs demand for gold-backed credit, as higher gold valuations translate into larger loan amounts for the same pledged quantity.

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This resilience sets gold loans apart from other lending products, which typically see a spike in NPAs during financial stress. Whether during the 2008 global financial crisis, the NBFC liquidity crunch of 2018, or the pandemic, gold lenders have historically weathered downturns better than most.