Manappuram Finance (NSE: MANAPPURAM) saw its shares drop by 15% to ₹150.73 as of 9:38 AM today, wiping off ₹1,913.75 crore from its market capitalization. The stock’s sharp decline followed a stringent order from the Reserve Bank of India (RBI) affecting its microfinance subsidiary, Asirvad Micro Finance Limited. The stock opened at ₹159.59, touched a high of ₹159.59, and hit a low of ₹150.73 during the day. It closed previously at ₹177.33.
The RBI has directed Asirvad Micro Finance, along with three other Non-Banking Financial Companies (NBFCs), to cease sanctioning and disbursing loans due to non-compliance with regulatory guidelines. This directive, effective October 21, 2024, has led to a significant plunge in Manappuram’s stock value.
Market Reactions from Brokerages:
- Morgan Stanley: Equal-Weight, Target Price: ₹170. The brokerage downgraded the stock due to the RBI’s embargo on Asirvad Microfinance, citing a prolonged negative impact on the company’s operations.
- BofA: Buy, Target Price: ₹220. Despite growth challenges, BofA maintains its ‘Buy’ rating, highlighting the company’s strong gold financing business and attractive valuation.
- Jefferies: Hold, Target Price: ₹167. Jefferies downgraded Manappuram to ‘Hold,’ noting that the regulatory restrictions would significantly impact earnings.
RBI’s Regulatory Crackdown:
The RBI’s action, taken under Section 45L(1)(b) of the Reserve Bank of India Act, 1934, is based on serious supervisory concerns regarding pricing policies, particularly relating to the Weighted Average Lending Rate (WALR) and interest spreads. The companies involved were found in violation of these regulatory frameworks, leading to the decision to halt new loan sanctions.
NBFCs Affected by the RBI Directive:
- Asirvad Micro Finance Limited (Chennai)
- Arohan Financial Services Limited (Kolkata)
- DMI Finance Private Limited (New Delhi)
- Navi Finserv Limited (Bengaluru)
Non-Compliance Issues:
The RBI identified several regulatory violations, including:
- Failure to adhere to Income Recognition & Asset Classification (IR&AC) norms
- Inaccurate assessment of household income for microfinance loans
- Insufficient disclosure of interest rates and fees
- Outsourcing of core financial services without proper compliance
While the NBFCs affected by this order cannot issue new loans, they are still allowed to service their existing customers and continue their recovery processes. The restrictions will remain in place until the RBI is satisfied with the corrective measures taken by the companies.
This regulatory move underscores the RBI’s commitment to upholding fair lending practices, particularly in the microfinance sector, where small-value loans have a significant impact on borrowers.
Disclaimer: The information provided in this article is for informational purposes only and should not be construed as investment advice. Please seek independent financial advice before making any investment decisions.
