However Manappuram is now 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% previously yr. Manappuram’s inventory? Down 6%. In truth, 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 disillusioned markets.
Microfinance weighs on Q3
Manappuram’s property 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%.
In contrast, 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.
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Profitability took a success as effectively. Excluding Asirvad, consolidated web 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 property (NPAs) rose from 2% to 2.5%, whereas web 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 dangerous loans, lowering 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% improve in web curiosity earnings, profitability took a success. Return on fairness (ROE) and return on property (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) not too long ago 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.
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The most important concern? Mortgage-to-value (LTV) ratios. The RBI had briefly raised the LTV cap from 75% to 90% in the course of the pandemic however rolled it again in March 2021. Some lenders proceed to breach the restrict—leaving them susceptible if gold costs dip, as seen in 2013.
The RBI can also be pushing for a transition from bullet reimbursement loans—the place stress can accumulate unnoticed—to equated month-to-month instalment (EMI)-based reimbursement buildings. Lenders have been given three months to implement corrective measures, and even the finance minister has warned towards non-compliant gold auctions. This regulatory shift towards tighter danger controls probably 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 identical 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 as a consequence of their quick tenors—sometimes 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 in addition 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 offers 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 stated, NBFCs have their very own strengths. They function with decrease department setup prices, permitting for sooner rural growth. 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 selection 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 centered on low-NPA gold loans.
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One other contributing issue is Manappuram’s shift in direction of shorter tenor loans. Whereas this reduces gold value and yield danger, it results in sooner look of dangerous loans on its books. Moreover, Muthoot enjoys a extra geographically diversified mortgage e book, with 53% of its portfolio outdoors 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 effectively 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—corresponding to these stemming from US coverage shifts—gold costs are likely to surge as traders search safe-haven property. This pattern has been amplified not too long ago, as central banks pivot away from US Treasuries in favour of gold, whereas forex depreciation has additional inflated the steel’s landed value in India.
Rising gold costs improve collateral values, cut 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 facet, financial volatility spurs demand for gold-backed credit score, as increased gold valuations translate into bigger mortgage quantities for a similar pledged amount.
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This resilience units gold loans other than different lending merchandise, which generally see a spike in NPAs throughout monetary stress. Whether or not in the course of the 2008 world monetary disaster, the NBFC liquidity crunch of 2018, or the pandemic, gold lenders have traditionally weathered downturns higher than most.
