But Manappuram is no longer about gold. Since 2014, the company has aggressively expanded to other borrowed sections. Non-gold loans now make 45% of their book-many of which come from microfinance.
That shift has created a Stark disconnect between gold prices and the company’s performance. Gold has increased by 38% in the last one year. Stock of Manappuram? 6%below. In fact, while the price of gold appreciated 1.4% in Q3Fy25, Manappuram’s stock on Friday corrected the rate of 13%, which fulfills markets disappointed with Q3’s earnings.
Microfinance weighs on Q3
Manappuram’s assets under Management (AUM) increased by 9.5% in year-by-year 44,200 crores in Q3Fy25. Drag? Microfinance, which accounts for 21% of AUM, shrunk 13%.
In contrast, Gold loanCore Business- About 19%. The other non-gold loan segment also expanded, which is from a small base. Except for his microfinance arm, Asirvad, the AUM saw a healthy 18.7% year-on-year.
Read this Why Manappuram Stock Post faded the post of Microfinance Ban
Profits also took a hit. Except for ASIRVAD, consolidated net profit 2% gradually declined 467 crores. However, including asana, the profit after tax fell to 51% 279 crores.
The poor debt was fixed. Standalone GDP increased from 2% to 2.5%, while net NPAs rose from 1.8% to 2.3% in Q3. As a result, the consolidated provisions increased by 271% year-on-year. Auction increased As Manappuram demanded recovery of bad loans, reduced his gold holding by 58.2 tonnes to 57.3 tonnes a year ago.
Adding under pressure, the cost of borrowing was higher, increased from 9.1% to 9.4% last year. Despite an increase in stable gold loan yield and 5% increase in net interest income at 22.7%, profitability took a hit. Return on equity (ROE) and return to property (ROA) decreased by 21% and below 5%, 9% and 2% respectively.
Regulator crack
Regulatory clampdown is adding uncertainty to gold financers.
The Reserve Bank of India (RBI) recently identified several compliance violations between Gold Financers including Bank of Baroda and IL & FS. The infrastation was from the abuse of the inflated loan books and the collateral to auction of opaque gold, where customers did not get their dues.
Read this Gold loan rapid increase behind RBI warning
The biggest concern? Debt-to-LTV ratio. The RBI had increased the LTV cap from 75% to 90% during the epidemic, but rolled it back in March 2021. Some lenders continue to dissolve the boundary – if they are diverted to gold prices, as seen in 2013.
The RBI is also emphasizing for an infection from bullet repayment loan-where stress cannot be noticed-the Essential Install (EMI)-to equalize the respective repayment structures. Lenders have been given three months time to implement corrective measures, and even the Finance Minister has warned against the non-transparent gold auction. This regulatory change towards tight risk control contributed to the slow growth of the region and high provision in Q3.
For the arbitration, the effect was sharp. When the RBI ordered its microfinance arm, Asirvad to stop debt restrictions and dysbersals, the company’s stock declined by 30% from the summit of July within three months. However, after a similar approval on rival Iifl, soon Manappuram helped to achieve most of its losses in the next quarter.
Growing competitive pressure
Even when the regulators tightened their grip, the competition is getting hot.
The gold loan market is rapidly expanded, fierce competition has been drawn from both banks and unorganized lenders, which still control the 65% section.
The recent increase in demand for gold prices and loans has further intensified the competition. Gold loans naturally carry low NPAs due to their small tenors – usually in less than a year – and emotional value borrowers connect to their pledged jewelery. This has made the segment attractive not only for NBFCs but also for banks, dying rapidly for market share.
Unorganized lenders hold a strong leg, especially in rural areas where formal banking access is limited. Their familiarity with local borrowers gives them a relationship -driven advantage.
Meanwhile, banks, with their low funding costs, are taking advantage of their rural presence-through agricultural loans-by reducing NBFCs to cross the gold loan at more competitive rates.
He said, NBFC has its own strength. They work with lower branch setup costs, allowing rapid rural expansion. His expertise in Gold Lending also enables him to offer quick loan disbursement, more flexible work hours, and in-house gold valuation expertise, which makes them a favorite option for emergency, final-recorte borrowers.
In the organized Golden Loone NBFCS, Manappuram is second only to Muthoot Finance. Since FY19, it has traded on a lower book-value multiple (1.2X) compared to 3.35x of Muthoot. The discount reflects concerns over the quality of the borrower, which focuses more on the high dependence of the Manappuram on unprotected microfinance loans, while the Muthoot focuses more on the low-NPA gold loan.
Read this Manappuram Finance: A falling knife or a mouth water opportunity?
Another contribution factor is a change towards small tenner loans of Manappuram. While it reduces the price and yield risk of gold, it leads to a rapid appearance of poor loans on its books. Additionally, Muthoot enjoys a more geographically diverse debt book with 53% of its portfolio outside South India compared to 37% of Manappuram.
Telwind for development
Despite the challenges, structural tailwinds favor gold lenders.
India’s deep roots are well established for gold. The country has the largest private gold reserves in the country, of which two-thirds of rural homes are in homes. As a result, gold loans are among the most widely adopted lending products, with market tripling 6 trillions in the last decade.
Even more importantly, gold borrowings flourish at the time of uncertainty. When the global risk increases-people-gold prices rose from American policy innings increase, as investors seek safe-heaven assets. This trend has recently been amplified, as the central banks have pivsed away from the American treasury in favor of gold, while currency depreciation has further increased the price of metal land in India.
Rising gold prices increase the collateral values, reduce the loan-to-value ratio, and create rooms for additional lending. Additionally, recovery and auction are more favorable when gold prices are upwards. On behalf of the borrower, economic instability demands gold exemption, as high gold evaluation translates into large debt amount for equal vowed quantities.
Also read Story of Dixon’s Caution: The faster they grow, the more difficult they fall
This flexibility sets gold debt in addition to other lending products, which usually see spikes in NPAs during financial stress. Whether during the 2008 global financial crisis, 2018 NBFC liquidity crunch, or epidemic, gold lenders have historically faced the most recession compared to recession.
