Muthoot Fin expects fall in Q2 loan book on risky credit settlement

Sep 14 2013, 13:50 IST
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Gold loan companies were competing with one other and offering high loan-to-value in 2011-12 when gold prices were on a surge. (Reuters) Gold loan companies were competing with one other and offering high loan-to-value in 2011-12 when gold prices were on a surge. (Reuters)
SummaryCompany estimates assets under management at end of second quarter to be around Rs 24,500 cr.

Gold loan company Muthoot Finance is expecting a fall in the current quarter loan book as it attempts to settle risky loans with a discount, company officials said.

The Kerala-based company, the largest gold financing company in India, estimates assets under management at the end of the second quarter to be around Rs 24,500 crore against Rs 25,840 crore at the end of the first quarter. The company is also going slow on branch expansion plans in the current fiscal due to the current market situation.

“We are trying to extinguish our high-per gram rate loans given during 2011 by offering a one-time settlement. Growth in loans is good and robust but given that we are settling old loans, our loan book is likely to end up lower than last quarter,” KP Padmakumar, the executive director of the company told FE. “These loans were given at a time when gold prices were very high and the customers have no incentive to close it. So, we are offering a discount and trying to settle it,” he added.

Gold loan companies were competing with one other and offering high loan-to-value in 2011-12 when gold prices were on a surge. RBI in March 2012 ordered industry to cap loans at 60% of the value of their gold collateral sensing risk on a market downslide.

The company is also going slow in its branch expansion and plans to open only 250 branches in the current fiscal against 400 in the last. At the end of the first quarter, the total number of branches stood at 4,163. Due to the volatility of gold prices the company expects a flat growth in the current fiscal with an upside of only 10% in the best scenario.

Padmakumar feels demand for credit has decelerated in the market and economic activity has also slowed down.

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