Shares of Kerala-based non-banking financial company (NBFC) Manappuram Finance Ltd tanked 16% in the early trade on Friday after the Reserve Bank asked its subsidiary Asirvad Micro Finance Ltd to 'cease and desist' from sanction or disbursal of loans.
Manappuram Finance shares opened a gap down at ₹159.70 and hit the day's low of ₹147.50 before settling at ₹156.10 on the BSE, taking its m-cap down to ₹13,068.95 crore. The shares are trading 32% lower than their one-year high of ₹230.25 achieved on July 19, 2024.
The apex bank on Thursday ordered four non-banking financial companies (NBFCs) to "cease and desist" from sanction and disbursal of loans from October 21, 2024. These are former Flipkart founder Sachin Bansal-led Navi Finserv, DMI Finance, Asirvad Micro Finance and Arohan Financial Services.
The RBI's direction for Asirvad Micro Finance is on "material supervisory concerns" observed in its pricing policy in terms of its weighted average lending rate (WALR) and the interest spread charged over its cost of funds, which are found to be excessive and not in adherence with the regulations.
Manappuram, in its statement, says a board meeting has been convened urgently to take immediate action. "The board has reiterated its unwavering commitment to implement RBI's direction in letter and spirit and monitor the corrective action in a time-bound plan."
The company says it will do a comprehensive review of the enterprise-wide governance, risk management and regulatory compliance. "We are working on a detailed plan and will submit the same to the RBI within the stipulated timelines."
The company says the RBI restrictions do not preclude Asirvad from servicing its existing customers and carrying out collection and recovery processes. "These business restrictions will be reviewed by the RBI upon receipt of confirmation from AMFL regarding suitable remedial action having been taken to adhere to the regulatory guidelines at all times, more particularly AMFL’s pricing policy, risk management processes, customer service and grievance redressal aspects, to the satisfaction of the RBI."
The RBI says over the last few months, it has been sensitising its entities on the need to ensure fair, reasonable and transparent pricing, especially for small-value loans. "However, unfair and usurious practices continued to be seen during onsite examinations as well as from the data collected and analysed offsite," it says.
In addition to usurious pricing, these NBFCs were variously found to be in non-adherence with the regulatory guidelines on the assessment of household income and consideration of existing or proposed monthly repayment obligations on their microfinance loans. Deviations were also observed in income recognition & asset classification (IR&AC) norms resulting in the evergreening of loans, conduct of gold loan portfolio, mandated disclosure requirements on interest rates and fees, outsourcing of core financial services, etc.
Besides, on October 1, 2024, the RBI through its circular had highlighted "irregular practices" in loans against gold ornaments and jewellery by supervised entities (SE) and directed banks and NFBCs to review their lending practices. The RBI asked lenders to closely monitor gold loan portfolios as the apex bank observes significant growth in this segment.
