ICRA has revised the outlook on the outstanding ratings of AA- on the long term debt and bank borrowings of Muthoot Finance (MFL) from negative to stable.

ICRA has an outstanding rating of A1+ on the short term fund based limits and Commercial Paper programme of the company.

The revision in rating outlook factors in the regulatory policy change announced by RBI and the reduction in risk profile of the company. RBI on Jan. 8, 2014 announced a relaxation in the LTV norms for gold loans originated by NBFCs from the present level of 60% to 75% of the intrinsic value of gold content of jewellery.

In ICRAs view the same should improve the growth prospects of MFL and partly address concerns regarding its competitive position viz.a.viz banks and the unorganized sector (which do not have any LTV regulatory restriction). The revision in rating outlook as takes into account  the reduction in risk profile of the company following an improvement in its LTV mix with a reduction in proportion of high loan-to-value (LTV) contracts to around 18% of total portfolio as on Sep-13 against 64% in Apr-13. The rating also takes into account the reduction in delinquencies of MFL from its peak 90+ day delinquency level of 6.82% as on Mar. 31, 2013 to 5.8% as on Dec. 31, 2013.

In ICRA’s view maximum incremental LTV of 75% should keep the company’s exposure to adverse movements in gold prices manageable. Additionally formulation of a transparent gold valuation process laid down in the regulation, along with potential stabilization of regulatory framework for the sector could improve lender comfort and financial flexibility of the company. ICRA also notes that MFL has been able to recommence its retail fund mobilization, which had been impacted by RBI July 2013 guidelines for private placements, through issuance of public issue of debentures, which should support its future growth.

Shares of the company gained Rs 1.05, or 0.77%, to trade at Rs 137.75. The total volume of shares traded was 111,649 at the BSE (3.42 p.m., Wednesday).