Gold Finance Stocks Under Pressure as RBI Directs NBFCs on Cash Disbursement

Gold Finance Stocks Under Pressure as RBI Directs NBFCs on Cash Disbursement/MINT

VoM News Desk | May 9, 2024 | 04:36 PM IST | Daily Gold Prices | Follow on Google News

Gold Finance Stocks Under Pressure as RBI Directs NBFCs on Cash Disbursement

Gold Finance Stocks Under Pressure as RBI Directs NBFCs on Cash Disbursement

Key Highlights:

1. RBI advises gold financing companies like Muthoot Finance and Manappuram Finance on cash disbursal of loans.
2. Stricter enforcement aims to align with RBI’s cash transaction discouragement efforts, impacting lending firms.
3. Manappuram Finance stock declines by 8.3%, while Muthoot Finance drops by 8.8%, affected by the directive.

Shares of gold financing companies, Muthoot Finance and Manappuram Finance, faced downward pressure following an advisory from the Reserve Bank of India (RBI) regarding cash disbursal of loans. The RBI instructed Non-Banking Financial Companies (NBFCs) to adhere strictly to provisions outlined in the Income Tax Act, restricting cash disbursements to amounts not exceeding ₹20,000.

While the directive isn’t new, the central bank’s reinforced enforcement has impacted lending firms, exemplified by the recent decline in stocks. Manappuram Finance observed an 8.3% drop, hitting ₹180.10, while Muthoot Finance experienced an 8.8% decline, falling to ₹1,510. Notably, gold loans constitute a significant portion of both companies’ assets under management (AUM), emphasizing the directive’s impact.

According to Ambit Capital, the RBI’s directive poses challenges, particularly for NBFCs focused on small-ticket loans in rural areas, like microfinance institutions (MFIs) and gold loan providers. However, NBFCs with established digital disbursement processes are expected to weather the impact better. Despite anticipated operational disruptions, Ambit maintains a positive outlook on Muthoot Finance, citing mitigating factors like higher gold prices and market share gains. Morgan Stanley shares a similar sentiment, forecasting short-term negative sentiment for both companies but suggesting a potentially better performance for Manappuram Finance due to its lower exposure to gold loans.

Source: Mint

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