Gold Financiers Face Tougher Regulations: What It Means for Muthoot and Manappuram - Read Here

The Reserve Bank of India (RBI) has implemented stricter regulations for gold financing companies, requiring them to review their processes and rectify any lapses within three months. This move comes in response to concerns about irregular practices in issuing loans against gold ornaments and jewellery, and it may have significant implications for the growth of these companies.

According to brokerages, these new regulations could weigh heavily on gold financiers. Manappuram Finance has already seen its shares decline by over 5% in the past month, while Muthoot Finance and IIFL Finance have managed slight gains of approximately 3% and 1%, respectively.

Brokerage Insights

Brokerage firm Jefferies acknowledges that while these tightened processes may hinder growth, larger gold non-bank finance lenders like Muthoot Finance might be better positioned to weather the storm. Morgan Stanley agrees, highlighting that Manappuram Finance is also well-regulated and has maintained its position in the market over the years. However, Morgan Stanley notes that Manappuram has a better margin of safety due to its lower stock valuations.

Interestingly, IIFL Finance seems unaffected by the RBI’s new measures, as it has already taken corrective actions. Shares of IIFL Finance were trading over 3% higher on the NSE, reflecting market confidence despite the regulatory changes.

Market Reactions

The tightening of rules has created some uncertainty in the market, leading to a slight decline in the shares of both Manappuram and Muthoot Finance, which fell about 2% on the NSE, trading at Rs 196.20 and Rs 1,988, respectively. Despite the surge in gold prices to record levels, the performance of gold financiers has remained muted, indicating a cautious market sentiment.

As the RBI's changes take effect, it will be crucial for these companies to adapt swiftly to maintain investor confidence and ensure continued growth