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  1. Muthoot, Manappuram shares fall over 5% after RBI issues cash disbursal advisory

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Muthoot, Manappuram shares fall over 5% after RBI issues cash disbursal advisory

Upstox

2 min read | Updated on May 09, 2024, 11:32 IST

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SUMMARY

Shares of Muthoot Finance and Manappuram Finance are trading pressured after the RBI reportedly asked NBFCs to strictly not issue cash loan disbursals over ₹20,000.

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Muthoot, Manappuram shares fall over 5% after RBI issues cash disbursal advisory

Shares of gold financiers Muthoot Finance and Manappuram Finance fell 4.5% and 6.9%, respectively, in morning trade, after the Reserve Bank of India (RBI) reportedly issued an advisory seeking restrictions on loan disbursals through cash.

A media report said the central bank had sent the advisory letter to select non-banking finance companies (NBFCs) asking them to adhere to existing norms of not disbursing loan amounts of over ₹20,000 in cash.

Section 269 of the Income Tax Act, 1961, says that no individual can receive more than ₹20,000 in loan via cash.

The letter is seen as a warning by the RBI to gold loan companies, which offer small-ticket loans via gold mortgage, and which sometimes make small loan disbursals via cash.

Gold loans comprise about 84% of Muthoot Finance’s loan book and 51% of Manappuram’s, according to a CNBCTV18 report.

In March, the central bank had barred IIFL Finance from issuing fresh gold loans following “material supervisory” concerns.

Last year, IIFL had surpassed Manappuram as India’s second largest gold loan company, garnering a gold loan portfolio of nearly ₹24,000 crore compared to the latter’s ₹21,000 crore. Muthoot is India’s largest gold loan company at a loan book of ₹66,000 crore.

While NBFCs make up a big chunk of the gold loan business in India, banks have also jumped into the action following sharp growth over the past few years.

However, the business remains plagued with regulatory concerns, especially surrounding practices over disbursal, charges as well as risk measures.

Manappuram shares are flat for the year while Muthoot is up 8.8%. In comparison, the NIFTY Financial Service index is trading 1.2% lower for the year.

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