Manappuram Finance Ltd Q2 FY2025 Concall Summary

Key Takeaways

• Asirvad ban dominates the quarter: RBI halted all disbursements from 22 October, citing pricing and process deficiencies; the subsidiary’s credit cost spiked to ~7% in Q2 and the ban’s resolution is the single largest swing factor for the stock.
• Gold loan core is steady but soft: AUM grew 17% YoY entirely on gold price appreciation while tonnage was flat; customer additions continued (4.03 lakh new customers) and management guided 10–15% annual growth.
• MFI stress is broad-based and not over: Climate shocks, festival spending and overleveraged rural borrowers pushed even prompt payers into first-time default; credit costs are expected to stay elevated and a recovery is pencilled only from Q4.
• Regulatory reset is underway across both businesses: A new RBI gold loan circular demands uniform practices by December, and Asirvad has submitted a compliance plan; management is engaging the regulator through industry associations on practical challenges.
• What to watch next quarter: Whether the RBI lifts the Asirvad ban within the hoped-for 3–4 months, the trajectory of MFI collection efficiency post-festivals, and any competitive shift from IIFL’s return to gold lending.

Asirvad Microfinance: The Ban and the Fallout

• RBI’s three charges: The regulator flagged deficiencies in Asirvad’s pricing policy, its assessment of household income and indebtedness, and a purity difference in gold at the time of disbursement versus auction. All three have now been systemically rectified and a compliance plan was submitted on 29 October.
• Disbursements halted completely: All lending operations stopped around 22 October; the company has requested the ban be lifted and management’s working expectation is a minimum 3–4 months before resolution.
• Credit cost already at ~7%: Q2 credit cost reflects the collection deterioration that preceded the ban, driven by climate disruptions, festival-linked cash outflows and overleveraged rural borrowers. Management believes Asirvad’s collections will not be worse than peers despite the disbursement stop.
• Liquidity backstop is holding: Lenders have not shown discomfort because they understand Asirvad is backed by a parent with sufficient liquidity strength; management states all repayment obligations will be met on time.
• Pricing reset promised but undisclosed: The company told RBI it would reduce its MFI rate to one of the lowest in the industry, but declined to disclose the specific number, citing the fact that it is not currently lending.
• IPO timeline now contingent: Management said it is too early to tell on the Asirvad IPO; the window runs until April and will depend on market conditions and how fast the ban is removed.

V P Nandakumar: “Our logic is simple. So some customers are bad, in particular group or a geography, why should other customers take the load of that bad customer.”

Gold Loan Business: Regulation and Growth

• RBI circular resetting the playing field: The 30 September circular instructs all lenders to review gold loan policies on LTV monitoring, renewal after due dates and end-use monitoring; full implementation is required within three months. Management sees this levelling the field after some banks and NBFCs lent indiscriminately at up to 90% LTV.
• LTV fell to 58% organically: The decline from 62% was driven by rising gold prices and customers choosing not to borrow up to the 75% ceiling, not by any regulatory directive.
• Industry is pushing back on practical challenges: The industry association has sought a meeting with the RBI Deputy Governor and senior supervisory officials; management expects to raise field-level difficulties faced by poor customers and hopes for a more practical calibration, while committing to full compliance with whatever the regulator ultimately insists upon.
• Growth guided at 10–15% annually: Management is not worried about flat tonnage, focusing instead on AUM growth and customer accretion; the regulatory changes are expected to create a level playing field that shifts share from unorganised lenders who still control ~65% of gold loan AUM.
• IIFL’s return welcomed: Management framed IIFL’s re-entry as a welcome feature that helps replace unorganised lenders, without commenting on any competitive impact observed in October.

V P Nandakumar: “In some of the areas, there are some practical challenges which we will bring to the attention of the authorities of the RBI. And whatever they want after the discussion, they insist upon, the entire sector will comply with. And that will make the sector only healthy. It’s not going to destroy the sector.”

Microfinance Portfolio: Stress and the Recovery Bet

• Stress drivers are multiple and overlapping: Above-normal rains across Gujarat, Maharashtra, Kerala, Telangana, AP, West Bengal and MP; rising essential goods prices; migrants sending higher amounts home; stagnant trip prices and fewer trips due to reduced demand; highly leveraged farmers and self-employed borrowers defaulting for the first time. The impact is concentrated in rural areas, which form a sizable portion of the portfolio.
• Collection efficiency is not yet quantified: Management said the ex-bucket collection efficiency number for Q2 and October “has to be worked out” when asked directly.
• Recovery timeline pushed to Q4: Green shoots of improvement are expected to start showing in Q3, with a more meaningful repayment recovery from Q4 onwards.
• Operating model is being rewound: The company is re-establishing group-level meetings and collections at the group level, aiming to return to the pre-liberalisation scenario where credit costs were lower and opex could be reduced.
• Uniform pricing stays, risk-based pricing rejected: Management will not move to risk-based pricing for MFI; instead it will restrict lending and use higher bureau score cutoffs to manage risk, arguing that good customers in a stressed geography should not subsidise bad ones.

Consolidated Financials and Asset Quality

• Consolidated credit cost guidance held at 2%: The team expressed confidence in improving collections despite the Asirvad spike, though the Q2 print already included a ~7% credit cost in the MFI book.
• NPA increase in non-MFI businesses: Driven by the same industry-wide challenges of heatwaves and natural calamities; management said the trend is similar to other players and no slowdown is expected in non-MFI growth.
• Covenant breaches disclosed: One NCD covenant breach related to GNPA (less than INR50 crores), and term loan covenant breaches are under discussion with banks; management offered to share the breach amount separately but did not disclose it on the call.
• ECB raised during the quarter: All-inclusive rate below 9% with a 3-year tenure; all bank borrowings are MCLR-linked.
• Provision stock partially disclosed: Asirvad held INR270 crores in Stage 3 provisions and INR390 crores total; MAFIL provisions stood at INR91 crores. The standalone Stage 1/2/3 breakdown and consolidated ECL provisioning were not provided.

People, Operations and Compliance

• 5,000 loan officers added QoQ: The additions were primarily directed at strengthening collections, reflecting the operational response to MFI stress.
• Digital personal loans halted: The regulator raised the issue during the last inspection (concluded September); the company stopped granting digital personal loans to gold loan customers until they close the existing loan.
• Gold loan compliance machinery set: Management stated the company is fully geared to implement all RBI requirements by the December deadline, without confirming whether any specific on-ground practices have already changed.
• Asirvad Tier 1 capital to stay at 15–18%: Management committed to maintaining capitalisation in this range through the stress period.

Guidance & Commitments

Key Metrics