We have adequate liquidity in all four of our NBFCs: Thomas John Muthoot, CMD, Muthoot Pappachan Group

April 16, 2020 1:15 AM

There will be very limited impact on affordable housing loans, most of which are backed by cash flow, and given mostly to the salaried class who have a steady income.

The realisation will be 100%, including the principal and interest, on such loans.The realisation will be 100%, including the principal and interest, on such loans.

By Hariprasad Radhakrishnan

Non-banking finance companies (NBFCs) should be given permission to open branches as the masses are in need of funds, says Thomas John Muthoot, CMD, Muthoot Pappachan Group, in an interview with Hariprasad Radhakrishnan. Muthoot says that the lender is awaiting more clarity from the RBI in rolling out its repayment moratorium. Excerpts:

As gold loans are well-collateralised, how much impact do you expect on gold financiers due to the Covid-19 crisis?
There will not be any major impact on gold financiers, except we may have to extend the tenor of the loans by three months based on the moratorium. The impact would be low as many of these loans were given almost a year ago, and the LTV (loan-to-value) of these loans is much less. Most of the loans will get redeemed, but a few may not get redeemed. The realisation will be 100%, including the principal and interest, on such loans.

What would be the impact across your other business segments such as housing loans, two-wheeler loans and small business loans?
There will be very limited impact on affordable housing loans, most of which are backed by cash flow, and given mostly to the salaried class who have a steady income. In two-wheeler loans as well, most of the customers have a steady income. Some of them might require a three-month moratorium. Even before the COVID-19, the auto industry was going through a rough patch. In addition to that, some impact would be there. But last year, we had not grown much in the segment, so the effect on the two-wheeler segment may not be high.

Have you rolled out a repayment moratorium, and how has been the response from your customers?
We have yet to give the moratorium to the customers because when we are operational, we would like to speak to the customer, and if they have been impacted, we would offer the moratorium. If they have not been impacted, we would counsel them to not avail the moratorium to reduce their liability. We are awaiting some clarity from RBI whether the moratorium is mandatory or it is based on the discretion of the lender. We have been sending SMS to our customers to know if they need the moratorium. When there is no moratorium given to us from banks, there should be a clarification on how to pass on the moratorium to our customers. We have asked RBI to allow NBFCs to function alongside banks as the masses are in need of funds at this time.

Do you expect liquidity to be impacted as loan collections decline due to the moratorium?
We have adequate liquidity in all four of our NBFCs. We have enough liquidity to meet all our obligations, and a lot of undrawn credit lines are also available. Now, with the last RBI intervention, all the banks have been given a lot of liquidity. Now, the banks, even during the lockdown, have been contacting us to understand our plans and business requirements. Today, when banks are flush with funds, they have to lend to entities, particularly retail NBFCs, to kickstart the economy.

Do you expect the gold price volatility to impact your earnings?
Even before the lockdown, there was so much erratic movement in the gold price. This happens only when there is a trend of uncertainty in the market, and we need to be careful about the loan-to-value at which we lend. Hence, we decided to keep our LTV at a particular level. Where we were able to lend at Rs 2,750 per gram, we had consciously kept it lower at Rs 2,650 per gram, so that there’s protection against heavy fluctuation. Once we become operational again, we will be lending at the same LTV.

Do you see opportunities for improving your digital platforms during the lockdown?
In the last three weeks, we have been aggressively promoting the use of digital mode of payments. We have a product named 24×7 SMS Gold Loan, through which customers can send an SMS to get a top-up loan on their registered bank account. If a customer has availed 50% of the approved loan amount, the customer can avail rest of it by sending an SMS. The money gets credited directly into the customer’s bank account and she can then withdraw the money at an ATM.

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