How do loan-against-gold firms look now

Reacting to the  Reserve Bank of India's notification that loans given against jewellery as collateral would no longer be eligible for priority sector lending, shares of Manappuram General Finance & Leasing fell  6% to Rs 108 on Thursday. Investors feared the loan-against-gold-jewellery firm's cost of borrowing may rise and hurt profitability. Loans to priority sectors such as agriculture, education, low-cost housing, and those given to weaker sections of the society offer lower interest rates.

But Manappuram chairman and managing director VP Nandakumar says the RBI move will not have a significant impact on his company’s profitability. “Of our total loan book of around Rs 7000 crore, around Rs 3200 crore is funded through priority sector lending from banks,” Mr Nandakumar told moneycontrol.com. He said the cost of priority sector loans was 10.5%. The borrowing cost for this portion of the loan book would go up by 0.75%, he said. In addition, the company had the option to raise around Rs 1600 crore through commercial papers, which it would be able to do at 11%. So the net impact of higher borrowing costs on the loan book as a whole would be around 0.34%. 

Manappuram charges as much as 22-23% on the loans it issues against gold jewellery. The interest rate varies anywhere between 12% and 23%, depending on the quantum of the loan compared to the value of the gold jewellery pledged. So a person borrowing up to 80% — the highest limit—of the value of the jewellery will have to pay peak rates, compared to somebody who is borrowing just 40% of the value.

“But since these are mostly short term loans, most people borrow the maximum amount,” Mr Nandakumar. Banks are eager to lend to non-banking finance companies like Manappuram, which then issue loans to individuals against gold jewellery. This is because such loans are not only secured, but also yield good returns, and help banks meeting their priority sector lending target of 40% of the total loan book.a

Realty, IT, FMCG drag Nifty below 5500

The benchmark Sensex shed over 200 points in trade today despite quiet global cues at 14 hours. Technology, telecom, private banking, power, FMCG, auto (barring Tata Motors), healthcare and metal (except Tata Steel) dragged the Nifty below 5500 level.

The profit booking was pulling the markets lower as the Sensex rallied more than 400 points in previous two sessions. Market analyst, Sangeeta Purushottam said we could just remain in a range somewhere between 5000-5500-5600 levels for a few months. "We also have a time correction which begins to come in. We are going to see real recovery in the market only in the second half of the year, maybe, towards the end of the year," she said.

Heavyweight Reliance Industries tumbled 2% followed by TCS, NTPC, Infosys, ITC, L&T and ICICI Bank with loss of 2-3%. Among other largecaps, HDFC, Bharti and Wipro were down over 1%.

The 30-share BSE Sensex fell 209 points to 18,240 and the 50-share NSE Nifty dropped 62 points to 5,464. The Nifty February futures were in discount.

However, indices were witnessing some recovery as traders were buying at lower levels. Heavyweights ONGC SBI and BHEL too were quite supportive. Tata Motors, Bajaj Auto, Tata Steel, Reliance Power and Suzlon Energy were other gainers.

Tata Power, M&M, Kotak Mahindra Bank and NTPC were top losers with 2.5-3.5% loss.

In midcap space, Jain Irrigation, S Kumars Nationwide, Blue Star, Chambal Fertiliser and Rashtriya Chemical rallied 3-9% while SpiceJet, Nava Bharat Ventures, IVRCL Infrastructure, Man Infra and Money Matters slipped 4-10%.

In smallcap space, Brigade Enterprises, Manaksia and Zandu Realty shot up 15-17%. RSWM and Seshasayee Paper were up 8-10%.

However, Allied Digital plunged 20% as Income Tax department raided on company premises. Graviss Hosp, Jupiter Bioscience, Kabra Extrusion and Asian Star were down 7-13%.