Manappuram Finance and Muthoot Finance shares surged sharply in early trade on Thursday after RBI draft report 'encourages' fresh gold lending by banks and non-banking financial institutions. The Manappuram Finance stock surged 15.83 per cent to Rs 39.15 while Muthoot Finance jumped 8 per cent to Rs 225.60, amidst heavy trading volumes.
The Reserve Bank of India on Wednesday published a draft report of the working group headed by K.U.B. Rao to study the issues related to gold imports and gold loans by NBFCs.
According to Spark Capital, "We view the draft report as a significant positive shift in tone, away from the RBI’s hawkish mindset on gold loans and gold loan NBFCs. The report categorically states that it sees an important reason for ensuring the financial health of gold loan NBFCs as lakhs of individuals take recourse to them for their immediate financial requirements without whom the borrowers would scramble back to money lenders and pawn brokers to their disadvantage, thereby rendering a socially useful function."
"Although the Rao committee has recommended imposing restrictions on borrowing from retail customers, this constitutes around 5 per cent of the total funding for Manappuram. On the positive side, the report has clearly specified that as of now gold loan NBFCs do not pose any systemic risk to the banking system, which should ease funding from the banking system. Given the same clarity around regulations, funding from the CP route should restart which was a major source of funding for Manappuram historically and has totally dried up in post regulatory issues," said Espirito Santo Securities, which reiterated a 'buy' on Manappuram.
The draft report also says that there is no concentration of risks arising from sources of funding for these NBFCs, is comfortable with banking sector’s exposure to the NBFCs, apart from expressing its comfort with the asset quality and capital adequacy of the gold loan NBFCs.
These recommendations, in our view, "remove many regulatory uncertainties which we have had on gold NBFCs and should open up increased funding by banks, MFs and other financial intermediaries to gold loan NBFCs," added Spark Capital.
"Given that this report has been prepared by a Committee comprising members who are all employees of RBI (unlike other draft reports prepared by outsiders) and the fact that it has been published by the RBI five months after its submission giving the RBI adequate time to have deliberated its contents, we are inclined to regard the recommendations as largely final, rather than mere recommendatory," said Spark Capital.