Gold loan providers Manappuram and Muthoot move closer as IIFL Finance shares sink under RBI whip | Top Vip News

Shares of gold mortgage lenders Manappuram Finance Ltd and Muthoot Finance Ltd rose as much as 14 per cent on March 5 after the RBI imposed curbs on rival IIFL Finance over material oversight concerns over its gold loan portfolio.

IIFL Finance stock reacted to the central bank’s move and hit the 20 percent decline circuit on March 5. Manappuram Finance, on the other hand, recorded the highest single-day gain since September 2020 on an intraday basis. The stock, however, trimmed its gains to trade 4 per cent higher at Rs 192 on the NSE.

Muthoot shares rose the most since June 2020, gaining for the fifth day in a row. At 10:58 am, Muthoot Finance shares were trading at Rs 1,398.05, up 4 per cent from the previous close.

The central bank observed serious deviations in the assessment and certification of purity and net weight of gold by IIFL Finance at the time of approval of loans and at the time of auction in case of default.

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IIFL Finance in a conference call addressed the impact of RBI restrictions, assuring investors that near-term profitability will not be significantly affected. He said the RBI report did not indicate any governance or KYC-AML issues.

The company stated that its recovery process is not affected and emphasized that there is no embargo on the auction of gold for recovery purposes. They further highlighted their intention to submit a compliance report to the RBI imminently.

Motilal Oswal believes this is a major negative setback for IIFL as gold loans constitute 32 per cent of its assets under management mix and a large proportion of the co-loans made by the company were made in the lending segment of gold. Since these are process-related lapses, the company can work with the regulator to rectify its observations on the gold loan portfolio.

“As there is little clarity on the duration for which this ban could remain in force, it is difficult to quantify the impact of this ban on the growth and profitability of IIFL’s assets under management,” the brokerage said.

Jefferies has maintained a ‘buy’ call on IIFL Finance with a target price of Rs 765 per share. Reserve Bank of India (RBI) restrictions, subject to review after a special audit and rectification process, may adversely affect earnings, particularly through write-off of gold loans, which constitute 32 percent percent of the company’s assets under management, the brokerage said.

The limitations could result in a decrease in co-loan income and potentially increase the cost of funds. Jefferies estimates that if the gold lending ban persists for nine months, the impact on IIFL Finance’s earnings per share could exceed 25-30 per cent.

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