Non banking finance company Manappuram Finance’s stock was battered on Friday, tumbling 13.5 per cent on the BSE to ₹153.45 after the RBI barred its subsidiary Asirvad Microfinance Ltd. from sanctioning and disbursing loans, along with three other NBFCs.

Manappuram Finance holds a 97 per cent stake in Asirvad Micro Finance and the microfinance portfolio constitutes around 25 per cent of the consolidated assets under management (AUM) of Manappuram.

Market analysts expect the microfinance entity to find it difficult to raise capital following the regulatory embargo.

“We believe Manappuram’s consolidated AUM growth and earnings momentum will take a sharp hit. Asirvad’s CRAR (capital to risk assets ratio), in Q1FY25 stood at 21.8 per cent. Here on, given the asset quality stress in the sector and higher provisioning needs, any capital raise required by Asirvad would remain a challenge,” Axis Securities said.

While the microfinance portfolio is expected to degrow sharply, gold loan growth would remain buoyant.

“We cut our AUM growth estimates to 15 per cent CAGR (compounded annual growth rate) over FY25-27. That said, the actual financial impact would be largely dependent on the duration of the restrictions,” Axis Securities said.

During the first quarter, the microfinance sector had witnessed a slower growth on account of factors such as harsh climate like heat waves in various parts of the country, general elections, funding issues and also overheating of credit in some geographies.

Manappuram said in a stock exchange filing it would undertake a comprehensive review of overall enterprise wide governance, risk management and regulatory compliance and will submit a detailed plan to RBI.

RBI’s concerns

Back in 2022, RBI had come out with the regulatory framework for microfinance loans, which was defined as a collateral free loan given to a household having annual household income of upto Rs 3 lakh. A household included husband, wife and their unmarried children.

The framework had also introduced a cap of 50 per cent of monthly household income as loan repayment obligation. While MFIs were allowed to put in place their own board approved loan pricing structure, the framework said that interest rates and other charges/fees must not be usurious.

However, over the last few months the regulator observed that in addition to usurious pricing, NBFCs were not adhering to the regulatory guidelines on assessment of household income and consideration of existing/proposed monthly repayment obligations in respect of microfinance loans.

Shifting stance

Market analysts pointed out that there is a shifting stance of the regulator from monetary penalties to imposing operational restrictions.

“Restrictions have been imposed not only on small players but also giant lenders including HDFC Bank, Kotak Mahindra Bank, Bajaj Finance etc. Such restrictions are lifted once the regulator is satisfied with the course correction that the lender has taken after the warning, which may take at least two to three quarters,” analysts at Incred Equities said in a sector note.