Manappuram Clarification on RBI Stance

Manappuram Finance (MFL) ad-line ‘Jab Ghar Main Pada Hain Sona Tab Kaheko ko Rona’ – featuring bollywood actor Akshay Kumar often promised the retail investor of financial stability at times of need. But late last evening its fortunes over-turned when the RBI cautioned the Non-Banking Finance Company (NBFC) from Accepting any Deposits from the Public. The RBI had stated that acceptance of deposits either by Manappuram Finance or by Manappuram Agro Farms (MAGRO) is punishable with imprisonment and cautioned general public who deposit money with Manappuram Finance Limited or MAGRO do so at their own risk.

This news sent MFL’s stock tumbling downhill in early trades and left unwary investors with much ‘rona-dhona’ (hue-n-cry) instead of ‘sona’ (gold). The counter has closed its day on the BSE at Rs 45.5 per share down 20 per cent from its previous closing price. We had cautioned readers in our earlier article (RBI Cautions Manappuram Finance against Acceptance of Any Deposits – dated 06/02/2012) that the counter would witness heavy negative action on the bourses today. 

We continue to maintain our bearish stance on the counter and urge investors to stay away from the counter as we see further weakness in its share price value. 

The company today issued a clarification on the BSE over RBI’s notice that it was accepting/renewing public deposits despite its tag of being a non-deposit taking NBFC. According to a press statement to the BSE, Managing Director, I Unnikrishnan has clarified that the company does not accept any deposits from the public. 

The statement further reads that MFL accepts investments through secured Non-Convertible Debentures (NCD’s) and Subordinate Bonds which do not fall under the definition of public deposits. MFL claims that after being re-categorized as a non-deposit taking NBFC in March 2011, it transferred its remaining deposits into an escrow account with Punjab National Bank, Thirssur (Kerala) Bank. 

The board has now decided to meet on 10th Feb 2012, to further discuss about RBI’s public notice. It shall also take measure to decide on further improvement in corporate governance of the company. 

What investors must note is that the management has not provided any clarity in its press release on the reasons that led to RBI issuing a public notice to the company. Moreover there is no mention in the press release about the unlisted company Manappuram Agro Farms (MAGRO) which as per RBI was allegedly involved in issuing receipts for deposits accepted by MFL. Hence we recommended investors to stay away from the counter as we see this development as a corporate governance issue with the company.