Muthoot Finance expects strong demand for gold loans to continue in FY27, driven by tighter unsecured lending, rising gold prices and growing credit needs among small businesses. MD George Alexander Muthoot tells Narayanan V that higher gold prices are pushing customers towards larger-ticket loans, even as the company sees churn in smaller loan accounts. Excerpts:
Gold loan AUM rose 50% to Rs 1.54 lakh crore in FY26, even as active customers declined sequentially. What is driving this trend?
We lost about 15 lakh customers in the smaller loan accounts in the Rs 10,000-30,000 bucket, but added a similar number in higher ticket sizes such as Rs 50,000, Rs 1 lakh and Rs 2 lakh. That is the churn happening in the portfolio. A customer who had taken a Rs 10,000 loan last year may now be coming for a Rs 50,000 or Rs 1 lakh loan because gold values have gone up.
That is why you see a dip in customers in the Rs 10,000-20,000 segment. This churn happens every four months. The new loans are also being created at a higher loan-to-value. For instance, if a person had taken a Rs 1 lakh loan by pledging 10 grams of gold last year, this time he may need to pledge only 6 grams for the same amount because gold prices have risen. That is why the tonnage of gold held by Muthoot Finance has also come down from 208 tonnes in FY25 to 196 tonnes in FY26.
How will the import duty hike on gold impact the gold lender?
The Centre has said it wants to reduce gold imports and increase the duty from 6% to 15%. Since we do not finance gold purchases or gold bullion, it does not directly affect Muthoot Finance. But the duty hike has one positive impact on gold lending. Whenever the duty increases, gold prices also go up. The duty was increased by 9%, and immediately, gold prices also rose by about 9%. There are reportedly 25,000-30,000 tonnes of gold with Indian households. If you divide that by the number of families in the country, every family owns about 10-20 lakh worth of gold. Gold prices have doubled in the last 10 years, which means Indians have become richer. As gold prices rise, people are realising they hold a very valuable asset and are monetising it. So, there are good prospects for the gold loan business going forward.
What is your AUM growth outlook for FY27?
There could be a strong offtake in gold loans this year as banks are tightening unsecured personal loans. Microfinance entities are also becoming cautious in lending, and we have even reduced the book size of our microfinance subsidiary. Non-salaried people from the unorganised sector make up 90% of our workforce. It is not easy for them to get personal loans. Banks are also reluctant to lend to MSMEs, even though these small businesses need additional capital. Many of them now have to depend on gold loans. The rise in gold prices is also adding to the gold loan momentum. Over the last 10 years, we have always started the year with a 15% growth guidance in the first quarter. We will revise the guidance after the second quarter.
Rising fuel prices and inflation could hurt lower-income borrowers. Do you see any risk of slippages?
If somebody does not take back their gold ornaments, the only option for us is to auction them. But generally, customers do not abandon their gold because it has sentimental value. In the last one year, we have auctioned less than `100 crore worth of gold, which is very minimal. Also, rising gold prices have increased borrowing power because customers now need to pledge a smaller quantity of gold for the same loan amount. Even if someone is unable to repay, the maximum they lose is the gold ornament. They do not end up as debtors like in personal loans. Also, if a customer had no intention to repay, they could simply sell the gold to a jeweller and realise the full value.
How do you manage the impact of gold price volatility?
International gold prices have declined by about 10%, but the rupee has depreciated against the dollar by around 5%, so prices are oscillating. Even now, if you look at gold prices in places like Kerala, they have not fallen by 10%. We have an adequate cushion to manage price fluctuations. While disbursing loans, the loan-to-value ratio is capped at 75%, but that ratio automatically comes down when gold prices increase.