Shares of smallcap NBFC major climbs over 6% in trade today; here's why

Shares of the non-banking financial company (NBFC) Manappuram Finance traded with decent gains of over 4 per cent after the Reserve Bank of India lifted supervisory ban on its microlending arm Asirvad Micro Finance with immediate effect.

At the day's high, the stock climbed over 6 per cent and reached Rs 191.50 apiece on the BSE.

"In this regard, we are pleased to inform you that the Reserve Bank of India, vide its letter dated January 08, 2025, has lifted the restrictions imposed on Asirvad Micro Finance Limited with respect to sanction or disbursal of loans with immediate effect," said the company's filing with the exchanges.

Earlier with effect from the close of business on October 21, 2024, the RBI directed Manappuram Finance's subsidiary Asirvad Micro Finance to abstain from sanctioning or disbursing loans.

The microlending arm's loan account for around 25 per cent of the total assets under management (AUM) at Manappuram Finance. As per Zee Business research inputs, between FY21-23, Asirvad Finance AUM registered average growth of 30 per cent.

Further in order to offset high risk, the company has a robust diversification plan. 

Meanwhile, investors will keep a watch on the timeline of Asirvad Micro Finance's Rs 1500 crore public issue or IPO.

Why was the ban imposed on Asirvad Micro Finance?

As the company was charging more interest than the prescribed limit, RBI took action against 4 NBFCs including Ashirvad Micro Finance.

Brokerages on Manappuram Finance after the development 

BofA Securities has maintained 'buy' call on the stock with the target raised to Rs 235 as against Rs 208 earlier. The brokerage has increased FY25-27 earnings estimate by 1 per cent. 

Meanwhile, Morgan Stanley has reiterated its equal weight call with the target price pegged at Rs 175, implying a nearly 3 per cent downside from the last close. The brokerage held that 10 per cent provisioning may have to be done against the MFI loan book between FY25-27. Furthermore, management guidance on MFI disbursement and loan pricing will be monitored.