Unlike banks, we don’t have single large borrower and our loans are backed by gold jewellery which we can auction for recovery
Gold loan company Muthoot Finance net profit dropped 20% in the December quarter and assets under management (AUM) fell 2% year-on-year (y-o-y). Speaking to FE, chief financial officer Oommen K Mammen said that in the next few quarters, the cost of borrowing is likely to fall enabling the bank to stabilise net interest margin (NIM). Excerpts:
What led to the 20.7% fall in the net profit?
Our assets under management (AUM) came down drastically to Rs 22,088 crore. Two quarters ago, our portfolio was falling and after the changes in the loan-to-value ratio to 75% by the RBI, we wanted to come back to the phase of growth. We took some customer-friendly measures and launched products at lower interest rates. There was also a slight reduction in the net interest income (NII) due to the fall in yields.
When do you expect the bank’s NIMs to improve?
We had reduced the interest rates on some schemes even before RBI lowered the repo rate, but it’s only now that we expect our borrowing cost to fall. I believe the benefit of interest rate cut should come to us and this fall in borrowing cost would help us arrest further decline in NIMs.
Though there is a small decline in yields, we believe we are delivering a good profit since Rs 154 crore is not a small amount.
The trick is to increase the portfolio and when we are able to grow our portfolio automatically, the profit level in absolute terms would increase. We are trying to maintain our NIMs at the current level of 9.5-10%.
Are you concerned about Rs 410-crore NPAs?
NPAs is not a factor to be concerned about in gold loan companies. One thing I would like to say is that our bad loans are different. Unlike banks, we do not have any single large borrower and our loans are backed by gold jewellery which we can auction and recover the loan. We have about Rs 410 crore of NPAs in Q3, of which around Rs 300-350 crore of NPAs will either get repaid or auctioned in the next quarter. Thus, it is not a single NPA account sitting on our book forever.
How has your cost of funding moved in the recent periods?
We have been able to bring down our average cost of borrowing to 11%. The objective is to give best deal to the customer in terms of lending rate and to achieve that, we always try to cut our cost of borrowing and reduce our operational expenses. Going ahead, if banks reduce their base rates it would definitely bring down our cost of borrowing in the coming quarters.