In an interview with ET NOW, I Unnikrishnan, MD, Manappuram Finance talks about the RBI directives and its impact

on the companies business. Excerpts: ET Now: Why has Reserve Bank of India banned or barred Manappuram Finance from a ccepting and renewing any public deposits? I Unnikrishnan: Manappuram Finance Ltd. was a deposit taking company till March 2011. With effect from that month Manappuram Finance Ltd. surrendered its public deposit licence and at that point of time there was an outstanding public depos its of some Rs 1.23 crore which we kept with a nationalised bank. Out of that we have been repaying this liability and we have repaid all the liabilities except to the extent of some Rs 9 lakhs. There are lot of people known to the family and when the company said they are n ot taking this money apparently they have lent some Rs 32 lakhs out of this Rs 1 .23 crore to the promoter entity called MAGRO. Since this company was built comp letely out of the reputation of the promoters, they may have desired that this i s well in order and RBI has passed two adverse comments actually on Manappuram F inance Ltd. One is that this payment of Rs 32 lakh is not in order, this is not proper and t he promoters have used the facility of the Manappuram Finance Ltd., to do this p articular activity. There are two adverse comments passed by Reserve Bank of Ind ia. We are in touch with the Reserve Bank of India and we are hopeful of resolvi ng this shortly. We are going to have a board meeting on February 10 on this coming Friday to dis cuss the RBI letter issued to the company. RBI has not proposed any panel action against the company except that RBI has told the board of the company to ensure that promoters relocate all this promoter entities outside the branch premises which in turn the promoters have assured the company that they are doing that an d they are in the process of regularising that. ET Now: The RBI has categorically said that Manappuram Finance Ltd. has been acc epting deposits from the public in its branches as well as offices and had been issuing deposit receipts in the name of Manappuram Agro Finance and like you sai d the second point the RBI has observed is that in some cases instead of repayin g the matured deposit, fixed deposit receipts are being issued in the name of Ma nappuram Agro Finance. What do you have to say to that? I Unnikrishnan: These branches are located in the vicinity of the promoters' fam ily and they have enjoyed lot of reputation there, so these people may not have found anything wrong with that particular thing and the promoters have informed to the company that they did it in good faith and without believing that there i s a violation. Now that RBI has observed that there is violation, they have told the company th at they are regularising and as regards to the company all I can say is this act ivity does not have any balance sheet or P&L linkage with the balance sheet of t he company. I do not see any reason for the promoters to do something that adver sely affects to the company now and in the past. ET Now: But what was the need to do it? Even though Manappuram Agro Finance do n ot have a licence to accept deposits, why did the promoters go ahead and do it? I Unnikrishnan: I would like to reiterate that Manappuram Finance Ltd. has not a ccepted any public deposits after March 2011 and RBI has not passed any comments saying that Manappuram Finance Ltd. has accepted public deposits after March 20 11.

ET Now: What about the funds that were accepted before March 2011? Will they be returned, now that the RBI objects to those? I Unnikrishnan: As I said this does not have any balance sheet or profit and los s account linkage with the balance sheet of Manappuram Finance Ltd., and the pro moters have given their word. They are regularising this, they are addressing th is, and they are people known to them and they have done this in good faith and they are regularising this. ET Now: So they will return the funds? I Unnikrishnan: Yes, that is what they have told to the Board. ET Now: Your stock and your reputation has taken hit because of this. How do you plan to defend it? I Unnikrishnan: All I want to say is this does not have any balance sheet or P&L link with the company and the promoters have informed that this will not recur and board is going to have meeting on 10 February in order to improve the corpor ate governance standards in the company. Board will be coming out with the concr ete action after talking to the promoters as well and the promoters also have vo lunteered that we need to work to that. ET Now: So you are admitting there was a fault? I Unnikrishnan: Yes, regulatory. RBI has observed that fault on the side of the company which we are regularising. ET Now: Did the promoter family or the promoters authorise such a transaction? I Unnikrishnan: As I said this company has been built completely out of the good will. ET Now: My direct question is did the promoters of Manappuram Finance authorise a transaction which involved accepting deposits in the name of Manappuram Agro F arms? Did the promoters authorise this? I Unnikrishnan: Yes, promoters were. ET Now: Why promoters authorise this? I Unnikrishnan: Promoters were doing this. ET Now: This is not breach of trust if the promoters authorise this if the compa ny does not have licence to accept deposits? I Unnikrishnan: They said they did this in good faith and without believing that there is a violation. Now that Reserve Bank has observed that there is a violat ion they said they are regularising this. ET Now: If Manappuram Finance is not allowed to accept public deposits how will this hit your business activity? I Unnikrishnan: Manappuram Finance Ltd. does not have any public deposit except to the extent of 9 lakhs which is kept in a separate account. So, Manappuram Fin ance Ltd., is not depending on public deposits for carrying on its activity. It does not have any liability so this is not going to affect the growth of the com pany because company is largely funded out of other sources of finance.

ET Now: How exactly do you plan to regularise deposits like you said that is wha t the promoters plan to do? I Unnikrishnan: All that company needs to do is to ensure that the promoters rel ocate these activities outside the branch premises this is what RBI also has tol d the company and nothing else. So, once that is done and since it does not have any balance sheet or P&L linkage, this is not going to affect the balance sheet of the company or its performance or its business. ET Now: Outside the balance sheet if you could explain that a little bit in deta il. Is that going to be a cash settlement or is that what you are hinting at? I Unnikrishnan: That is what they have informed that they will regularise, when they say regularise they meant that they are repaying or whatever they have take n because these were people known to promoters. ET Now: What is the ownership of Manappuram Agro Farms? I Unnikrishnan: It is completely owned by the promoters of Manappuram Finance Lt d. ET Now: So Manappuram Finance Ltd. has got no crossholding in Manappuram Agro Fa rms whatsoever? I Unnikrishnan: Nothing, the balance sheet of Manappuram Finance Ltd. does not h ave any cross holding or does not have any linkage with any of these activities. ET Now: What is the quantum of funds which is to be returned if you could give m e the exact figure? I Unnikrishnan: As I said since this does not have any balance sheet or P&L link age and as MD of the company I do not have idea about the amount people give to them. ET Now: Are there any other group companies in which the promoters are collectin g deposits? I Unnikrishnan: There are other group entities which are otherwise authorised. ET Now: In which you are collecting money in the premises of Manappuram Finance or that's a separate business? I Unnikrishnan: No. ET Now: So in the premises of Manappuram Finance, Manappuram Agro Finance was th e only company which has received or collected deposits? I Unnikrishnan: In the premises of Manappuram Finance Ltd., they have been other group entities which are not collecting money. In the premises of Manappuram Fi nance Ltd., Manappuram Finance Ltd. is the only company which has been accepting money as I know in the balance sheet of the company and I do not see any reason why money should be collected in other balance sheets, there is nothing like th at. ET Now: Manappuram is a company which is in the finance of financing money again st gold which requires a lot, total trust. Do you think this move will only dama ge your reputation? I Unnikrishnan: As I said this does not have any.

ET Now: I am not talking about balance sheet or P&L or what it means for the exi sting shareholders, I am talking about your reputation because gold lending busi ness is always done on basis of reputation, it is always a legacy business. It i s a business which really grows because of word of mouth? I Unnikrishnan: Our gold loan business is largely driven by the customers coming to us for pledging gold and there is a reputation challenge from that side only if we fail to return the gold. There is no such case and I do not see any reaso n why the customers find this as an issue. This is a technical violation and we are working with RBI to resolve this issue.