Higher loan-to-value ratio will help gold loan cos: Icra

Rating agency revises outlook Muthoot Finance, Manappuram to 'stable' from 'negative' on RBI move to hike LTV ratios

Rating agency Icra today revised its outlook on gold loan players Muthoot Finance and Manappuram Finance to 'stable' from 'negative', following the Reserve Bank's decision to increase the loan-to-value (LTV) ratios.

"The revision in rating outlook on Icra-rated gold loan companies factors in the regulatory policy change announced by RBI and reduction in their risk profile," Icra said in a note.

The Reserve Bank last week increased the loan-to-value (LTV) ratios back to the original level of 75 per cent from 60 per cent, following the steep fall in gold prices.

The rating agency said increase in LTV ratios signals a "potential stabilisation" in the regulatory landscape which can increase lender comfort.

Apart from the change in the regulatory stance, Icra said the reduction in delinquencies for the two companies from the peak levels of March-April 2013 as a result of focus on recovery efforts was also instrumental in the revision in the outlook.

The agency said it expects both Manappuram and Muthoot Finance to report better returns on equities medium-term on an improvement in the margins and portfolio growth.

The Manappuram scrip was trading 4.50 per cent up at Rs 20.90 a piece, while Muthoot's shares were trading 0.33 per cent up at Rs 137.15 on the BSE, whose 30-share benchmark was up 1.18 per cent at 1522 hrs.