Manappuram Finance Ltd. (MGFL) surged the most in more than two years and Muthoot Finance Ltd. (MUTH) rallied to a record after a central bank report eased uncertainty about Indian gold-loan companies’ business.
Asset quality, bad loans, capital adequacy and borrowing sources of these companies aren’t a cause for concern, a panel set up by the Reserve Bank of India said in a report released after markets closed yesterday. Manappuram soared by the 20 percent limit, the steepest climb since August 2010, to 40.60 rupees at 12:14 p.m. in Mumbai. Muthoot jumped 16 percent to a record 242.15 rupees.
“The report provides legal status to the gold loan business,” Espirito Santo analysts Santosh Singh and Nidhesh Jain wrote in a report today. The panel report “removes the regulator uncertainty and overhang.” The analysts maintained their Nov. 26 recommendation to buy Manappuram shares with a target of 45 rupees. Muthoot isn’t tracked by the brokerage.
Assets at non-bank lenders such as Manappuram and Muthoot have increased 20 percent annually for the past five years to $670 billion, according to a November report by the Basel, Switzerland-based Financial Stability Board. That makes India the world’s fastest-growing market after Indonesia for lending outside the banking system, according to the report. It also poses risks for a country where 65 percent of the population and 92 percent of small businesses don’t have access to banks, World Bank and government data show.
“The report clears all negative perceptions that lending against gold is not a socially useful function,” Oommen K Mammen, chief financial officer of Muthoot Finance, said in a phone interview. “The report saying that there is no systemic risk due to the gold-loan business is the biggest takeaway for us.”
The report comes even as the Indian government plans to increase taxes on gold imports to tackle the nation’s record current-account deficit, 80 percent of which is due to overseas purchases of the metal, according to the central bank.
India is the world’s largest buyer of the precious metal.
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