Analysis of Kerala Floods and Its Impact on Manappuram Gold Loan

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After the southern state of India, Kerala, faced the worst floods in a century, it has been found that several sectors will take a hit, especially those related to banking, finance, durable goods, cement, and tyre. The gold loan financing, which is one of the backbones for farmers in the state, will witness a mix bag of results. Manappuram Finance Limited, along with other gold loan providers will be affected, as many of the branch office were located in Kerala. Higher loan slippages and insurance claims will cause delayed returns for the financial companies.

Kerala Floods to Hamper Manappuram Gold Loan Prospects Initially

The livestock and state infrastructure has been damaged greatly. The effect of overall damages will reflect on Manappuram gold loan, other lending companies, as well as the lives of common man. In the financing sector, there will be a rise in non-performing assets immediately. But, these may lead to capital buffer and profits to take the strain away, in coming days. Restructuring of loans and collateral offer comforts could some of the steps the gold loan providers will have to take to ease out situation of defaulters.

With many branches under water and destroyed, resuming the work-flow will be time consuming. Reconstructing and repairing the offices shall also affect the workforce and daily tasks, causing slump in follow-up with existing loan against gold customers. In gold loan financing, 52% of the total lending book is also contributed by Southern States. Thus the floods will duly cause financial repercussions to banking and financial companies.

How is Manappuram Finance Gold Loan Affected By Kerala Floods?

The Kerala floods 2018 will have an adverse impact on financers, banks, and NBFCs that offer gold loans. There is however a scope of increased remittances and credit demand, which can help financial institutions.  The loan delinquencies will shoot up, but the actual haircuts that the loan providers will have to take will differ from case to case and asset to asset. The floods claimed more than 470 lives, leaving many injured as well. For Manappuram Finance, 7% of the micro finance branches and 15% of gold loan branches are located in Kerala.

In future however, high-value gold loans will grow because of the floods. The decision of rating action for the loan will base on expected impact on capital buggers and profitability. The immediate slippage could ring an alarm for investors, but the short-term negative impact will gradually cease. Keeping a long-term view, the price-dip may escalate possibilities of gold purchase, and gold loans. With water receding, consumers will require funds to reconstruct home, buy appliances, and other personal expenses. Easiest method to finance all these needs is a loan against gold.

Delayed Repayments, Higher Instalments Will Create a Lack of Funds

The devastation by flood has impacted 12 lakh people, who are now homeless. The financing companies like Manappuram are focusing to rebuild the scope of consumption of gold loans, but total washout of Kerala’s major areas, will delay the process. Even jewellers will experience a hit. Continued sales in other reasons may limit the damages, buy reduced paying capacity of people will bring a significant difference in the gold loan consumption.

The statewide 1-year moratorium on repayment will be another issue. Moratoriums such as these are moral hazards. People capable of repaying the loan will hold back and undue postponements will affect the business. Moreover, people will also find it difficult to pay higher instalments later, because there would be no interest waiver in this period. The interest will thus keep on compounding, making the total cost of gold loans, high.

The forbearance provided under the guidelines of RBI about natural calamity shall also delay the recognition of delinquencies. It may hike the credit costs for both non-bank lenders and banks. Though demand for credit may spike by 1.5 times, credit will be available to borrowers with high credit alone. Manappuram Finance could witness higher auctioning post-moratorium because the borrowers depend greatly on agricultural activities for loans.

About Manappuram Finance Gold Loan

Manappuram gold loan is available between Rs. 1,000 and Rs. 1 crore. The tenure is up to a year and interest rate starts at 9.90% to 11.75%. There are no prepayment charges. Thus, is anyone wants to close the loan sooner than desirable, no penalties exist. Documentation process is simple. The customer has to provide proof of residence and identity. PAN card and Aadhar card is mandatory along with passport-sized photographs and filled and signed loan application form. The loan can be applied online on the official website of the company.

After gold valuation, which happens at the branch office, a loan amount will be finalized. The borrower can select a loan amount lower than what he/she can take. Interest rate and tenure will be decided based on the loan amount, gold purity and weight. Once the loan process completes, the amount will be transferred to the bank account of the borrower. The loan to value ratio will be considered when deciding the amount of loan. As per the regulations of RBI, Manappuram Finance can grant up to 75% of the gold’s value as funds.

The above-given information tells about how Kerala floods will affect the gold loan providers, especially Manappuram Finance. The data provided is for reference and to understand the actual impact and steps taking by providers to lessen the consequences, consult the customer care team of the company.

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