Manappuram Finance plunges 20%; corporate governance in question

KOCHI/MUMBAI: Manappuram Finance, the second-biggest lender against gold, plunged 19.96% as investors worried about its ability to continue sourcing funds and questions were raised about corporate governance after the RBI said the company and its group cannot access public deposits.

Depositors remained calm with little signs of panic as the company assured that all was fine with its operations and the central bank's diktat will have limited impact on its operations or its ability to serve them.

"There are enquiries and clarifications, but everything is under control," said I Unnikrishnan, Managing Director, Manappuram Finance. Manappuram shares ended 19.96% lower at 45.50.

The RBI on Monday said Manappuram Finance and an unlisted group company are not eligible to accept public deposits as it was a violation of rules governing its licence to function as a lender. Any such act is punishable with imprisonment, the bank said. Members of the public depositing money with Manappuram Finance or MAGRO would be doing so at their own risk, it said.

Although this may affect one source of funding for Manappuram, but the company could still access funds from banks and through sale of bonds that could keep it going.

"Deposit is not a source of funding for NBFCs. They have higher exposure to banks and institutions," said Rajiv Suneja, partner at KPMG. "It does not change the business mix."

The lender founded in 1949 has been the best performer in the stock markets given its secured lending business that has high profit margins. Unlike traditional lending by banks, the risk of default is quite low and even if such an event happens, the loan amount is fully recovered unless there's a sharp crash in gold prices.

"The total retail deposits are just about 3-4% of the liabilities of Manappuram," say Ambit Capital analysts, led by Pankag Agarwal. "Hence, we do not see any impact on the business of the listed entity from this ruling.

However, the management will have to come clean on the involvement of a promoter entity in the whole episode to clear any doubts arising in the minds of the investors in terms of corporate governance."

The board of directors of Manappuram Finance will meet on February 10 at the company headquarters in Thrissur, Kerala, to discuss about the press release of the RBI. The board will also discuss measures to be taken to improve the corporate governance of the company.

Source: EconomicTimes