The gold loan business is mostly unaffected by the day-to-day volatility in gold prices.
Gold loan major Manappuram Finance expects to get funds from banks for on-lending. However, the company will continue to raise funds through NCDs and from overseas markets to diversify its borrowing portfolio, VP Nandakumar, MD and CEO, tells Vinayak Aggarwal and Shashank Nayar.
Has the rise in gold prices affected demand for gold loans?
The gold loan business is mostly unaffected by the day-to-day volatility in gold prices. However, in a scenario of consistently rising prices, we may get an initial pick-up in demand coming from small and marginal borrowers attracted by the higher loan amount. Our observation is that this is not usually sustained as higher prices soon become the new normal.
The other important aspect is that customers avail gold loans based on their needs. Generally, they are not tempted to borrow more just because with higher gold prices the available loan amount is also higher. In fact, with some borrowers, it can also happen that higher gold prices lead to a pledge of a lower quantity of gold. Our current gold loan book LTV is only about 62%, well below the regulatory ceiling of 75%.
The borrowing costs amount to 9.27%, in line with the cost for other AA-rated NBFCs. Do you see costs going down? Also, are you considering NCDs or overseas issuance of bonds to raise capital?
In Q1 of this year, our weighted average cost of borrowing went up by 7 bps to 9.34%, but this was more due to long-term loans we recently availed as part of our strategy to further strengthen ALM. We have the approval to raise up to Rs 1,000 crore via NCD, of which we have raised about Rs 400 crore only. To further diversify our borrowing profile, we would continue to raise funds via money market instruments, NCDs, term loans from financial institutions, and also overseas borrowings depending on the cost.
With the monetary policy committee (MPC) relaxing bank lending towards NBFCs for priority sector lending, how do you see funding shaping up for your microfinance subsidiary Asirvad, which is focussed on priority lending?
As I understand, the recent easing of banks’ funding to NBFC for on-lending to the priority sector is not applicable to microfinance as it already has that opportunity through securitisation. However, the relaxation is likely to help us raise funds from banks for on-lending to the priority sector, especially in housing finance, SME lending and vehicle finance.
About 62% of your borrowings come from banks. Is funding from banks an issue for NBFCs? Considering the latest regulation on bank lending to NBFCs, how much spread over the MCLR is expected to come down?
For us, raising funds has not been an issue. We continue to receive funds from all the routes – CP rollovers are continuing, we are getting funds from our banks and AMC partners and we have recently raised $75 million from IFC.
We expect banks to eventually pass on the benefits from reduced risk weights, and RBI’s push via relaxation in lending norms to NBFCs is also likely to reduce borrowing cost in near term by impacting both MCLR and spread.
During Q4FY19 results, you mentioned foraying into the insurance manufacturing business. Can you share details
We plan to acquire a licence from Irdai to issue microinsurance products. We are engaged in discussions with regulators and hope to complete the process in a year or two.
Gold loans are mostly taken by middle and lower class borrowers. Do you think the gold loan should be a part of priority sector lending?
Actually, gold loans given by NBFCs to agriculturists enjoyed the benefit of priority sector lending until 2011. A good part of our gold loans is taken by MSMEs who use this for short-term working capital requirements. Farmers are another important segment who avail gold loans during the sowing season to tide over cash shortfalls. Today, gold loans given to farmers by banks get classified as priority sector lending but not by NBFCs. Removal of this anomaly by making all micro gold loans eligible for priority sector lending status would be a step in the right direction.
What is the average ticket size for gold loans?
Our gold loan book has an average ticket size of less than Rs 35,000.
Where do you see gold prices moving in the near to medium term?
As a company, we do not have an opinion on gold price movements. Personally, I feel that the recent hardening of prices is here to stay, given the current international scenario. The falling growth across all major economies is likely to result in more easy money from central banks.