By Manappuram Finance’s shares fell sharply on October 17, dropping as much as 15% to Rs 150.73 in morning trading after the Reserve Bank of India (RBI) ordered its subsidiary, Asirvad Microfinance, to halt loan disbursements.
The central bank’s crackdown on Asirvad, along with three other non-banking financial companies (NBFCs), cited material supervisory concerns over loan pricing policies.
Manappuram Finance’s shares were trading at Rs 149.70 at 10:10 am on Friday.
RBI halts loans at Asirvad Microfinance, sparking sell-off
The RBI announced its action against Asirvad Microfinance, Arohan Financial Services, DMI Finance, and Navi Finserv, ordering them to stop loan sanctions and disbursals.
According to the RBI, these firms engaged in excessive pricing practices that violated regulatory guidelines.
Asirvad Microfinance, a critical arm of Manappuram Finance that provides small loans to low-income women, contributed 27% to the parent company’s total revenue in FY24.
Following the RBI’s announcement, shares of Manappuram Finance quickly hit a selling spree, with analysts raising concerns over potential earnings impact and capital infusion needs.
Brokerages respond with mixed outlooks on the stock
International brokerage Jefferies downgraded Manappuram to ‘hold,’ citing the likelihood of reduced earnings and the potential need for Asirvad to raise capital.
The firm warned that the parent company may need to step in with capital support if Asirvad’s net worth deteriorates, adding pressure on Manappuram’s financial stability.
Bank of America reiterated its ‘buy’ call but reduced its target price from ₹240 to ₹220 per share, adjusting earnings estimates downward by 3-6% to reflect slower growth at Asirvad.
“The stock has already de-rated by 25% over the last three months, accounting for the growth weakness to a large extent,” the brokerage noted, adding that gold financing remains a bright spot.
Morgan Stanley adopted a more cautious stance, downgrading Manappuram to ‘equal-weight’ and slashing its earnings forecast by 30% for FY26-27.
The brokerage highlighted risks from slower loan growth, tighter credit practices, and elevated provisioning to maintain investor confidence, which could delay any recovery in the stock.
JP Morgan also revised its outlook on Manappuram’s bonds, warning that the RBI’s intervention may impact the company’s borrowing costs and funding access.
CRISIL currently maintains a long-term ‘AA-/Stable’ rating on Asirvad Microfinance, but analysts caution that further regulatory scrutiny could lead to downgrades.
Manappuram faces repeated regulatory scrutiny
This is not the first time Manappuram Finance has come under pressure from the central bank.
In May, the RBI issued an advisory limiting the cash disbursal of loans for both Manappuram and its peer, Muthoot Finance, instructing them to comply with the Income Tax Act’s ₹20,000 limit on cash disbursements.
In September, the RBI directed gold financiers to review their loan issuance practices after flagging irregularities in loans against pledged gold ornaments.
Analysts believe that these regulatory measures could weigh on growth and profitability in the gold finance sector.
Asirvad Microfinance vows corrective action
In response to the RBI’s directive, Asirvad Microfinance stated, “We value the feedback provided by the RBI and have taken immediate steps to notify our board.
A meeting has been convened to address the concerns raised and take necessary corrective actions.”
While the RBI’s move raises concerns over operational stability, brokerages remain divided on the long-term outlook for Manappuram Finance.
With the gold financing business showing resilience, some analysts believe that current valuations may present a buying opportunity. However, investor sentiment remains fragile, and the stock may take time to recover amid ongoing regulatory uncertainties.
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