Gold Financing Companies,Is it Time To invest??

Manappuram and Muthoot Finance are two comapnies which positioned themselves as strong performers in Gold loan business,infact it is great achievement in Indian markets where people are addicted to traditional method of taking loans with goldsmiths.Recent guidelines of Reserve bank of India would have a negative impact on these companies as it would lead to pressure on their operating margins,so in the near term these regulations will have negative impact on their performance. while the loan-to-value (LTV) ratio will restrict growth in assets under management of these companies,stricter KYC norms like pan card for loan over 5 lakhs would turn borrowers again to un organised lenders for their credit needs. The business model of gold loan companies was centered on higher ltv and quick turn around time.These guidelines would impact both and would lead to decline in their loan portfolios. since interest rates on lower LTV loans are lower and operating expenses of gold loan non banking finance companies are fixed in nature,the decline in profitability would be higher than decline in loan book,so these stocks are being hammered now and would underperform for some more sessions.while the RBI had earlier capped LTV for goldloans to 60 %,it has standardised the method to calculate gold value. companies will now have to take the average price of 22k gold in line with bombay bullion association to arrive at the value of gold. The rbi also said the making charges cannot be included in LTV. this becomes important as most gold financiers include making charges in LTV and take up their  effective ltv ratios to 70 percent. This will result in lower yeilds.Muthhot and manappuram may loose to competitors specially from the unorganised segment. since gold loan companies charge 22-24% interest rates and banks 13-15%,the differential will now narrow. The rbi has also mandated prior approval for opening more than 1000 branches and to have appropriate facilities for gold storage,however muthoot and manapuram has more than 1000 branches so this norm would  have no impact,.however rbi will have direct expansion of these players in the longer run. verification of gold ownership for over 20g and cheque disbursement of loans over 100000 will also reduce the competitiveness of gold financiers and increase their paper work.