Manappuram Finance's stock tumbles 14% on RBI action against subsidiary

Shares of Manappuram Finance fell 14 per cent to Rs 153.45 apiece on Friday, a day after its subsidiary Asirvad Micro Finance was barred by the Reserve Bank of India (RBI) from sanctioning and disbursing loans.

Asirvad can continue to service its existing customers and carry out its collection and recovery processes, the RBI will review this ban after the company takes corrective measures to fully comply with regulatory guidelines, particularly regarding its pricing policies, risk management, customer service, and grievance handling.

“Going by precedents in the recent past where the RBI had handed out a ban (on specific product lines) to particular NBFCs, we believe this ban on Asirvad could potentially take between six to nine months to be revoked,” said Motilal Oswal in a report on Friday. 

According to the report, Asirvad contributes around 27 per cent to the consolidated assets under management (AUM) of Manappuram Finance. As of June 2024, Asirvad’s AUM stood at Rs 12,300 crore, which included Rs 1,200 crore of the gold loan portfolio. Additionally, Asirvad’s profit after tax (PAT) contribution to the consolidated entity stood at 21 per cent in FY24 and 15 per cent in FY23. In addition to microfinance, Asirvad housed 515 gold loan branches, which will be impacted because of this ban. 

“We believe this RBI action will impact its MFI collections as well. Overall, we believe that the RBI ban will affect Asirvad’s AUM growth (ban on lending operations) and profitability (moderation in spreads). We now estimate Asirvad’s AUM to decline 25 per cent year-on-year in FY25 (compared to the 9 per cent year-on-year growth expected earlier),” the report added.