Explained — Why the latest RBI announcement is positive for Manappuram and Muthoot Finance

Shares of gold financiers Manappuram Finance Ltd. Muthoot Finance Ltd. and IIFL Finance Ltd. were trading with gains on Thursday, February 6, after the Reserve Bank of India’s (RBI) proposal to dispense the requirement of prior approval to open branches for gold NBFCs that already have over 1,000 branches.

Earlier, the rule stated that NBFCs-Investment and Credit Companies (ICCs) engaged in the business of lending against gold collateral with over 1,000 branches are required to obtain prior RBI approval to open new branches.

In view of the comprehensive prudential and governance framework applicable to NBFC-ICCs, it is proposed to dispense with the requirement of prior approval for opening branches by such NBFCs.

The draft instructions in this regard will be issued shortly, seeking stakeholders’ comments.

Why is it positive for gold financiers?

Although there have not been many instances where RBI approval was not given to open a new gold loan branch for NBFCs, it still was an overhang for gold lenders to always seek the central bank’s nod before opening even one branch, if their total count was above 1,000.

The proposal is sentimentally positive as the regulatory requirement is dispensed.

Muthoot Finance has 4,967 total gold branches, as of the second quarter of this fiscal. Meanwhile, Manappuram Finance and IIFL Finance have 4,044 and 3,000 branches, respectively, as of the third quarter.

Muthoot Finance opens 100 to 200 gold loan branches every year.

Stock reactions

Shares of Manappuram Finance, Muthoot Finance and IIFL Finance were trading with gains of up to 2% around 2 pm on Thursday.