RBI Cautions Manappuram Finance Against Acceptance Of Any Deposits.

According to a press release, the Reserve Bank of India (RBI) has advised Kerala-based gold loan company Manappuram Finance not to accept/renew any public deposits. The RBI has stated that acceptance of deposits either by Manappuram Finance or by Manappuram Agro Farms (MAGRO) is punishable with imprisonment and has cautioned the general public who deposit money with Manappuram Finance Limited or MAGRO do so at their own risk.

After initially being registered with the RBI as a deposit-taking non-banking financial company (NBFC), the company lost its tag and consequently became a non-deposit-taking NBFC on March 22, 2011. As per this development, the company was supposed to refrain from any deposit acceptance/renewal activities.

However it was noted by the RBI that Manappuram continued to accept deposits from the public at its branches and receipts were being issued in the name of MAGRO, a sole proprietary firm run by the executive chairman of the company. It was further observed that in some cases instead of repaying the matured deposits, fixed deposit receipts were being issued in the name of MAGRO.

In the light of all the above observations the RBI has cautioned the gold company from indulging in any activities pertaining to the acceptance or renewal of deposits. However, in reply to the RBI’s action the company management has said that they have not been accepting any deposits since March 2011 and a technical glitch in its accounts had led to the RBI issuing it a notice.

The counter had closed yesterday on the BSE at Rs 56.85 per share, down by 3.4 per cent from its previous closing price. We expect the counter to witness further negative action today on account of this development. Our advice to readers is to stay away from the counter despite its robust Q3 numbers until we get further clarity on its updated state of development.