We may see one more quarter of asset-quality pain

Written by Vishwanath Nair | Updated: Nov 6 2013, 08:08am hrs
Apart from its flagship gold loan business, the Muthoot Pappachan Group aims to grow in microfinance housing finance and auto loan business, says Thomas Muthoot, chairman and managing director. In an email interview with Vishwanath Nair, he talks how the groups gold finance business has dealt with regulatory hurdles and expansion plans outside the southern states. Excerpts:

What are your growth plans for the second half of FY14 Some gold loan companies have pulled back on their expansion plans and are going slow because of the tough regulatory environment. Is it true for you

We currently have about 4,000 branches, including those under construction. We have expanded enough to meet our growth plans up to March 2014. Since we are in a consolidation mode, we will not add any branch till September next year. Hence, this will have minimal impact on our growth strategy.

How has the business environment changed for you after the regulator imposed tougher regulations for gold loan players over the last one year

We did welcome the Reserve Bank of Indias (RBI) move as it creates a level-playing field across players. The regulation has certainly affected growth of the sector and to some extent for us also.

What is the default rate in your gold loan business Has it gone up recently How do you manage the quality of your assets

Default rate in gold loan business is traditionally 1%. When gold prices corrected in April and May, our board took a conscious decision to step up provisions for bad loans. We may see one more quarter of asset quality pain.

Which other line of business are you targeting for growth Where does housing finance figure in this Any growth targets

Along with gold loans, we would target auto loan, home loan and microfinance business. Three years ago, our gold loan business was contributing 100% of all our businesses, which has now significantly come down to 89 %. Going by the growth of the housing finance, micro-finance and other businesses, gold loan business contribution may further come down to 80% over next three years. Microfinance is expected to contribute 9% of income, auto loans 4% and housing finance 3.4%.

The housing finance business focuses on customers in the lower to middle income category, primarily in the informal sector. It started operations in 2011 and currently has presence across Kerala, Tamil Nadu, Karnataka, Maharashtra, Gujarat, Madhya Pradesh and Uttar Pradesh. Maharashtra and Gujarat are the top markets and we would be looking at consolidating our presence in areas where we already have a strong group network. We would also be entering Rajasthan soon apart from expanding into new locations in MP, Gujarat and Maharashtra. Its current loan book size is R200 crore and aims to touch R300 crore by March next year.