By Nandan Mandayam and Siddhi Nayak
(Reuters) – Shares of Indian non-bank gold lenders Manappuram Finance and Muthoot Finance dropped 2.9% and 3.6% early on Tuesday due to growth concerns, a day after the central bank found “several irregular practices” in the industry.
These irregularities, the Reserve Bank of India said, included the use of third parties to source and appraise gold loans, not valuing gold in the customer’s presence and inadequate due diligence.
Those comments are “a sentimental negative for the gold lenders”, brokerage Motilal Oswal said in a note.
The central bank gave lenders three months to fix the lapses and report back in order to avoid supervisory action.
“Tightening of these processes may affect growth, (and) asset quality recognition at gold financiers,” Jefferies said in a note late on Monday.
Indian banks have consistently clocked double-digit loan growth over the past few months as strong economic growth helped drive retail loans.
The rate of growth in gold loans, however, has outshone the industry average, helped by bullion prices hitting record-highs.
For instance, outstanding loans against gold jewellery grew nearly 41% on-year in August, much higher than overall loan growth of 13.6% and also doubling from the 20.1% gold loan growth rate in August 2023, the RBI’s latest data shows.
The RBI, worried about the risk of bad loans, has publicly warned all lenders against “all forms of exuberance”.
It has previously taken action against gold loan companies, including barring IIFL Finance in March, from offering such loans due to “material supervisory concerns”.
While those restrictions were lifted last month after a special audit, it wasn’t soon enough to prevent IIFL Finance from swinging to a net loss in its April-June quarter.
(Reporting by Nandan Mandayam in Bengaluru and Siddhi Nayak in Mumbai; Editing by Savio D’Souza)
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