By Shashank Didmishe

Kochi-based non-banking finance company (NBFC) Muthoot Finance is planning to drive business improvement through its mainstay gold loan operations to achieve its guided growth of 10-12% by the end of current financial year, George Alexander Muthoot, managing director said in an interaction. The company in Q1FY23 saw a 2% sequential decline in its assets under management (AUM) and a muted 8% growth on year-on-year (y-o-y) basis as against an earlier guidance of 10-15% growth.

Earlier, the company saw a lower AUM as it had to auction higher-than-usual volume of gold because a chunk of the customers were unable to make repayments on loans taken against the gold due to which the company had to auction the gold. The company auctioned Rs 5,000 crore of gold in Q4FY22 and around Rs 1,500 crore of gold in Q1FY23, Muthoot said, adding that the going head the auction volumes are expected to return to normal due to improving economic situation.

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The company is expecting the loan growth to stablise in Q2FY23, and in Q3 and Q4 it expects to reach 10-12% improvement in loans. The company is witnessing business growing at branch level and it is also opening the branches, which will drive business. The company recently received approval from the Reserve Bank of India (RBI) to start 150 new branches on pan-India basis. While some of the branches have commenced operations and the management expects all the branches to start operation by October 31.

“We are bullish on the gold loan business. Our priority is the gold loan and we will continue to do that and we are confident about the prospect of the gold loan business. That will be major focus for us going ahead,” Muthoot said.

The company’s optimism on gold loans comes despite the competition from tough banks. Banks are focusing more on gold loans but they are not taking business from the company, Muthoot said, adding that there is plenty of room to grow. However, analysts are expecting gold NBFCs to forgo some of its margin to support loan growth due to the competitive pressures.

The company has shifted its lending lower rate teaser loans it had disbursed between October and February to higher rates. While the company has stopped these loans from March onwards, it was able to retain 80-85% customers, which will also aid its net interest margin (NIM) going ahead, Muthoot said.

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Going ahead, discontinuation of teaser loans, migration to higher rates, and higher rates for new loans, should improve yield on loans, ICICI Securities said in a report. While Muthoot Finance’s yield dropped 144 basis points (bps) sequentially, its peer Manappuram Finance’s yield on loans increased by 63 bps as the latter is disbursing new loans at a higher rate, the brokerage said.

On fresh fund raising, Muthoot said that the company plans to raise around Rs 500-600 crore from public listed non-convertible debentures (NCD) issue in each quarter through the financial year. The company recently raised Rs 643 crore from public listed NCD issue, which is being utilised for onward lending for gold loans, he added.