Thursday , March 30 2017

RBI’s Cap on Cash Might Impact NBFC Cash Against Gold

RBI’s new decision on cap on cash against Gold loans keeps NBFC firms under scrutiny

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Manappuram Finance and Muthoot Finance, popular Gold financing NBFC Firms, witnessed immense selling pressure at the bourses this Friday. This was due to Reserve Bank of India decision stating that NBFCs cannot lend more than 20,000 in cash against gold.

After witnessing a decline of 89.50 intraday, Manappuram Finance stock closed at 90.50, down 4.54 per cent, on the Bombay Stock Exchange. Although, Muthoot Finance said to have recovered from its day’s low of 326.65, nearby at 337.95, still it is down by 3.85 per cent.

NBFCs were allowed to issue high-value loans against gold for about 1 lakh. But now Reserve Bank of India has depreciated it to Rs20,000 in accordance to the provisions of the Income Tax Act.

“We interpret this as being applicable to loan disbursements and repayments across all categories of NBFCS. This will reduce the ability of NBFCs to accept partial or full loan repayment in cash thus reducing their leeway on the collections front,” Kotak Institutional Equities said.

It further revealed that the upcoming regulations will prescribe a cap of Rs 20,000/borrower which includes complete list of outstanding loans to the borrower which might comprise a significant part of MFI loans. It might be challenging to pay micro-finance loans without payment. There is yet to seek RBI clarification on the applicability of these regulations on microfinance loan repayments.

“We await more clarity on the impact of the aforesaid regulations before revising our estimates and price targets,” they said in a report

Kotak advices caution

“Current rich valuations of most NBFCs do not provide any room for such developments. We retain our cautious view on NBFCs operating in the cash ecosystem; reiterate reduce on Bharat Financial Inclusion, Mahindra Finance and Shriram City Union Finance,” the report said and added Shriram Transport Finance’s inexpensive valuations may cushion the downside.

c and Manappuram Finance, has gold loans below Rs 1,00,000 and is distributed in cash. The average loan, which can be availed from Muthoot Finance is Rs35,000-40,000 . Further, Shriram City Union Finance has gold loan which includes 15 per cent of total loans, out of which 60-70 per cent are retail loans that may also be in cash.

Weekly collection to get hit

Coming to Bharat Financial Inclusion, the company may also face challenges. As in the month of October-December, the average ticket size of income generating loans was Rs 21,955 and for medium- and long-term loan was Rs 20,700 and Rs 38,079, respectively. Weekly collections in electronic format might be challenging for the Company, Kotak mentioned in the report.

Still, few analysts revealed that Most of these firms are making gold loan disbursements through cheque or e-transfers. The move by RBI might not influence on these firms.

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