Manappuram, Muthoot rally 20% as RBI allows gold NBFCs to lend more

NEW DELHI: Gold loan companies such as Manappuram Finance and Muthoot Finance rallied as much as 20 per cent each in morning trade on Thursday, after the Reserve Bank of India (RBI) revised upwards loan-to-value (LTV) norm for NBFCs engaged in gold loans.

The RBI revised upwards loan-to-value (LTV) norm from 60% to 75%, with immediate effect. This means, a borrower can obtain a loan of Rs 75 instead of Rs 60 earlier by pledging gold jewellery worth Rs 100.

At 09:20 a.m.; Manappuram Finance was trading 19.8 per cent higher at Rs 18.15, and Muthoot Finance was up 19.98 per cent to Rs 129.10.

"The development is positive for gold loan companies like Muthoot Finance and Manappuram Finance, as earlier norm of 60% LTV had resulted in moderation of loan books for these companies," Angel Broking said in a note.

"It also appears that regulator is now comfortable with the loan books of these NBFCs and wants them to play an active role in monetisation of idle gold in the country," added the report.

However, the Reserve Bank did not change its earlier mandate that stipulates NBFCs to disburse loans of Rs 1 lakh or above by cheque.

The central bank clarified, the value of the jewellery for the purpose of determining the maximum permissible loan amount will be only the intrinsic value of the gold content therein and no other cost elements should be added, ET reported.

"This measure will make life simpler for us," George Alexander Muthoot, managing director, Muthoot Finance, one of the biggest gold loan companies, told ET. "Our loan book has de-grown in the last one year. Now, it should bounce back in the next two quarters."