Manappuram Finance extends rally post RBI panel recommendation

The stock has rallied 36% in past two days after a working group of the RBI suggested a higher loan-to-value (LTV) ratio for gold loan companies.

Manappuram Finance, the company engaged in gold finance business, has rallied 9% to Rs 44.20, extending its previous day’s 20% surge, after a working group of the Reserve Bank of India (RBI) suggested a higher loan-to-value (LTV) ratio for gold loan companies.

The stock opened at Rs 41.80 and hit a high of Rs 46 on the NSE. As many as a combined 46.26 million shares have already changed hands on the counter in early noon deals against an average sub 3 million shares that were traded daily in past two weeks.

The committee under the chairmanship of KUB Rao, an adviser to RBI’s department of economic and policy research, recommended a review of the cap on the LTV to 75% from 60% currently, which will allow non-banking finance companies (NBFC) to lend more money against gold securities.

“Standardisation of valuation of gold and increase in the LTV cap from 60% to 75% would help gold loan companies increase business volumes at a reasonable pace, although the pace of growth is likely to be much lower than the over 120% compounded annual growth rate (CAGR) witnessed over the last three years,” according to a research report by rating agency Icra.

Overall, the RBI’s guidelines on LTV, lending rates and on retail non-convertible debentures (NCDs) would have a significant bearing on the growth prospects and profitability of gold loan companies, added report.