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RBI revokes ban on Asirvad with immediate effect

Expect gradual improvement in Asirvad’s MFI and gold loan business

* RBI, in its Press Release dated 8th Jan’25, shared that it has lifted the supervisory restrictions on Asirvad Micro Finance, a subsidiary of Manappuram Finance (MGFL), with immediate effect. Earlier, on 21st Oct’24, RBI had directed Asirvad to halt the sanctioning and disbursement of loans. With this ban now lifted, Asirvad can resume both its MFI and gold loan business.

* The regulator stated that Asirvad initiated remedial actions and submitted various compliances to RBI. In view of the company’s adoption of revamped processes and systems, as well as its commitment to ensuring adherence to regulatory guidelines on a regulatory basis, Asirvad was able to make the necessary changes to RBI’s satisfaction. Additionally, the company has committed to ensuring fairness in loan pricing.

* The revocation of this ban is a positive development, especially considering it occurred in less than three months, which is significantly shorter than our initial base case assumption of six months. This may have been possible due to the constructive efforts made by Asirvad to work with the regulator to have the ban lifted. Additionally, given that the MFI sector itself is going through a state of turmoil, we believe the regulator has shown empathy toward the four lenders (including Asirvad) who were previously served business bans.

* The revocation of this ban will not only allow Asirvad to resume new sanctions and disbursements, but it will also help improve collection efficiencies, which had deteriorated during Nov-Dec’24. In addition to its MFI business, Asirvad can now resume its gold loan disbursements, which had been halted due to the ban.

* We have increased our loan growth estimates for the MFI business and estimate MFI loan growth of 15%/17% in FY25/FY26. We are now also factoring in a spread compression over the next two years, based on our estimate that Asirvad will cut its lending rates to ensure fairness in loan pricing. We increase our FY25/FY26/FY27 PAT estimates by 2%/~7%/8% to factor in higher loan growth and lower spreads/margins from the MFI business.

Valuation and view

* While Asirvad is expected to witness a gradual improvement in new business volumes, it will still have to weather the industry-wide asset quality stress (due to customer overleveraging) in the MFI sector, which will keep its credit costs elevated over the next two to three quarters.

* For the parent entity MGFL, the gold loan growth will continue to remain healthy, driven by demand-side tailwinds due to the poor availability of short-term personal and MFI loans. However, we foresee risks of spread compression in its gold loan business, as the company has started focusing on slightly higher ticket size gold loans. We maintain a Neutral rating on MGFL with a TP of INR205 (based on 1.0x Sep’26E P/BV).

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