After a 40% loan growth in Q1, India’s largest gold loan NBFC Muthoot Finance expects demand to stay strong, aided by soaring gold prices and tighter regulatory guidelines for unsecured credit. Managing director George Alexander Muthoot shares the company’s outlook with Narayanan V. Excerpts:
What led to the 90% jump in net profit? Will it sustain?
Our profit this time has increased by around ? 400 crore due to one-off items. Two things contributed to this— we had an NPA write-back of Rs 700 crore, and the accrued interest on that was about Rs 275–Rs 300 crore. Secondly, we had done an ARC deal about a year back. While the capital was received earlier, we got about Rs 100 crore this quarter, which has gone to the P&L as interest income. Probably another Rs 100 crore should come in the next quarters also. This was a facility we gave to customers—instead of auctioning the gold, we gave them time, and many of them were able to save their asset. These are one-off items, so we won’t get them going forward. Having said that, the regular business has grown by 40%, so income should also increase by around 40%.
Guidance for the growth in advances for the full year?
We have consistently guided for a 15% growth in the first two quarters, but have ended up achieving much higher. We usually make a change only after the second quarter. Last year, we guided 15% and ended up with 40% for the full year. Prior to that, we guided 15% and reported a 25% growth. This year also, we have given a guidance of 15%, but should be doing much more than that. We will give a revised guidance at the end of the next quarter. We continue to see huge demand for gold loans because lenders have tightened norms for unsecured personal loans. Microfinance loans are also getting tougher since lenders have become more cautious. Availing of credit card loans, too, are becoming difficult. So, the only option left for many people is to take a gold loan. That’s why all types of lenders are growing in gold loans. Besides, gold prices being high, people feel they have a valuable asset with them and they can monetise it.
Muthoot Money’s AUM has grown over 200%, crossing the Rs 5,000-crore mark.
Muthoot Money was actually started as a vehicle finance company before Covid. We faced a lot of problems financing used cars and commercial vehicles, so we gradually stopped that business. At that time, we had a Rs 600-crore portfolio. Since we had already invested capital, we thought about ways to recover it. About two years ago, we started small-ticket gold loans, and that business has now grown rapidly. At present, Muthoot Money has 1,000 branches doing gold loans. Of the Rs 5,000-crore AUM, only Rs 100 crore is from vehicle finance, the rest is gold loans. This segment will continue to do well. We are also investing Rs 500 crore to maintain capital adequacy. Muthoot Money has a separate team and is opening branches in locations where Muthoot Finance is not present. The average outstanding per branch in Muthoot Money is only Rs 5 crore compared to Rs 25 crore per branch for Muthoot Finance. So, we see good potential to grow.
Tell about microfinance subsidiary Belstar?
I think the worst is behind us in the microfinance sector. Lenders are now operaying in a more calculated and responsible manner, and we are seeing things stabilise. Our new loan collection efficiency is at 98–99% and improving. We have also recalibrated our portfolio. Today, our microfinance AUM is about Rs 7,700 crore, compared with Rs 10,500 crore six months back. Recent regulations have been supportive – 40% of the portfolio can now be non-microfinance. We have started doing gold loans there as well, opening 10 branches last quarter and planning another 50 this quarter exclusively for gold loans. This will strengthen the balance sheet with a mix of secured and unsecured lending.
How will the final guidelines of the RBI impact gold lending?
They are quite good. I mean they help both customers as well as NBFCs. Gold loans of up to Rs 2.5 lakh have been made very easy. The guidelines also give more flexibility to offer differentiated products — like EMI-based loans, monthly interest products and bullet payment loans. Gold loans can now be given up to 85% of loan-to-value (LTV).
From these regulations, the message I get is that the finance ministry and the RBI are keen to promote gold loans in a structured way.
Of course, they have also put in a lot of new processes, but those are mainly for new players.