However Manappuram is not nearly gold. Since 2014, the corporate has aggressively expanded into different lending segments. Non-gold loans now make up 45% of its e book—half of which comes from microfinance.
That shift has created a stark disconnect between gold costs and the corporate’s efficiency. Gold has surged 38% up to now yr. Manappuram’s inventory? Down 6%. In actual fact, whereas gold value had appreciated by 1.4% in Q3FY25, Manappuram’s inventory corrected by as a lot as 13% on Friday eafter its Q3 earnings disenchanted markets.
Microfinance weighs on Q3
Manappuram’s belongings beneath administration (AUM) grew 9.5% year-over-year to ₹44,200 crore in Q3FY25. The drag? Microfinance, which accounts for 21% of AUM, shrank 13%.
Against this, gold loans—its core enterprise—grew practically 19%. Different non-gold mortgage segments expanded too, albeit from a smaller base. Excluding its microfinance arm, Asirvad, AUM noticed a more healthy 18.7% year-on-year bounce.
Learn this | Why pleasure in Manappuram inventory publish lifting of microfinance ban pale
Profitability took a success as properly. Excluding Asirvad, consolidated internet revenue declined 2% sequentially to ₹467 crore. Nonetheless, together with Asirvad, revenue after tax plunged 51% to ₹279 crore.
Unhealthy loans ticked up. Standalone gross non-performing belongings (NPAs) rose from 2% to 2.5%, whereas internet NPAs climbed from 1.8% to 2.3% in Q3. In consequence, consolidated provisions rose a large 271% year-on-year. Auctions elevated as Manappuram sought to get well unhealthy loans, decreasing its gold holdings to 57.3 tonnes from 58.2 tonnes a yr earlier.
Including to the stress, borrowing prices inched increased, rising from 9.1% final yr to 9.4%. Regardless of steady gold mortgage yields at 22.7% and a 5% enhance in internet curiosity revenue, profitability took a success. Return on fairness (ROE) and return on belongings (ROA) slumped to 9% and a pair of%, respectively, down from 21% and 5% a yr earlier.
Regulatory crackdown
Regulatory clampdown is including uncertainty to gold financiers.
The Reserve Financial institution of India (RBI) just lately flagged a number of compliance violations amongst gold financiers, together with Financial institution of Baroda and IL&FS. Infractions ranged from inflated mortgage books and misvaluation of collateral to opaque gold auctions the place clients didn’t obtain their dues.
Learn this | Brisk development in gold loans seemingly behind RBI warning
The largest concern? Mortgage-to-value (LTV) ratios. The RBI had quickly raised the LTV cap from 75% to 90% through the pandemic however rolled it again in March 2021. Some lenders proceed to breach the restrict—leaving them weak if gold costs dip, as seen in 2013.
The RBI can be pushing for a transition from bullet compensation loans—the place stress can accumulate unnoticed—to equated month-to-month instalment (EMI)-based compensation constructions. Lenders have been given three months to implement corrective measures, and even the finance minister has warned in opposition to non-compliant gold auctions. This regulatory shift towards tighter danger controls seemingly contributed to the sector’s slower development and better provisioning in Q3.
For Manappuram, the influence was swift. When the RBI ordered its microfinance arm, Asirvad, to halt mortgage sanctions and disbursals, the corporate’s inventory tumbled 30% from its July peak inside three months. Nonetheless, an analogous sanction on rival IIFL quickly after helped Manappuram regain most of its losses over the next quarter.
Mounting competive stress
Whilst regulators tighten their grip, competitors is heating up.
The gold mortgage market has expanded quickly, drawing fierce competitors from each banks and unorganized lenders, who nonetheless management 65% of the phase.
Latest surges in gold costs and mortgage demand have additional intensified competitors. Gold loans inherently carry decrease NPAs because of their quick tenors—usually lower than a yr—and the emotional worth debtors connect to their pledged jewelry. This has made the phase engaging not simply to NBFCs but additionally to banks, that are more and more vying for market share.
Unorganized lenders keep a robust foothold, significantly in rural areas the place formal banking entry is proscribed. Their familiarity with native debtors provides them a relationship-driven benefit.
In the meantime, banks, with their decrease funding prices, are leveraging their rural presence—primarily by means of agricultural lending—to cross-sell gold loans at extra aggressive charges, undercutting NBFCs.
That mentioned, NBFCs have their very own strengths. They function with decrease department setup prices, permitting for quicker rural enlargement. Their specialization in gold lending additionally allows them to supply faster mortgage disbursals, extra versatile working hours, and in-house gold valuation experience—elements that make them a most well-liked alternative for emergency, last-resort debtors.
Amongst organized gold-loan NBFCs, Manappuram ranks second solely to Muthoot Finance. Since FY19, it has persistently traded at a decrease book-value a number of (1.2x) in comparison with Muthoot’s 3.35x. The low cost displays considerations over borrower high quality, given Manappuram’s increased reliance on unsecured microfinance loans, whereas Muthoot stays extra targeted on low-NPA gold loans.
Learn this | Manappuram Finance: A falling knife or a mouth-watering alternative?
One other contributing issue is Manappuram’s shift in the direction of shorter tenor loans. Whereas this reduces gold value and yield danger, it results in quicker look of unhealthy loans on its books. Moreover, Muthoot enjoys a extra geographically diversified mortgage e book, with 53% of its portfolio exterior South India, in comparison with Manappuram’s 37%.
Tailwinds for development
Regardless of the challenges, structural tailwinds favour gold lenders.
India’s deep-rooted affinity for gold is properly established. The nation holds the world’s largest personal gold reserves, with two-thirds of it in rural households. In consequence, gold loans are among the many most generally adopted lending merchandise, with the market tripling to ₹6 trillion over the previous decade.
Extra importantly, gold lending thrives in instances of uncertainty. When world dangers rise—comparable to these stemming from US coverage shifts—gold costs are inclined to surge as traders search safe-haven belongings. This pattern has been amplified just lately, as central banks pivot away from US Treasuries in favour of gold, whereas forex depreciation has additional inflated the metallic’s landed value in India.
Rising gold costs improve collateral values, scale back loan-to-value (LTV) ratios, and create room for added lending. Moreover, recoveries and auctions are extra beneficial when gold costs are on the upswing. On the borrower aspect, financial volatility spurs demand for gold-backed credit score, as increased gold valuations translate into bigger mortgage quantities for a similar pledged amount.
Additionally learn | Dixon’s cautionary story: The quicker they develop, the more durable they fall
This resilience units gold loans aside from different lending merchandise, which generally see a spike in NPAs throughout monetary stress. Whether or not through the 2008 world monetary disaster, the NBFC liquidity crunch of 2018, or the pandemic, gold lenders have traditionally weathered downturns higher than most.
