By Amriteshwar Mathur
The yellow metal, gold, which is trading close to its all-time record levels of Rs 85,000 per 10 grams for 24-carat in Mumbai has also resulted in considerable boost in business for banks and NBFCs. And that’s because gold loan portfolio of banks rose 71 % on a y-o-y basis to Rs 1.72 lakh crore by 27 December 2024, according to data from the RBI.
In the case of NBFCs too, growth in gold loans has been strong although slower than the growth reported by banks. For instance, in the case of Kochi-based Muthoot Finance, its standalone gold loans under management amounted to Rs 92,963.6 crore at the end of the December 2024 quarter, a rise of 34 % y-o-y.
Similarly, in the case of Thirussur-based Manappuram Finance, its standalone gold loan portfolio amounted to Rs 23,700 crore at the end of the third quarter of FY25, a rise of nearly 19 % y-o-y.
However, NBFCs held a significant 59.9 per cent share of the total gold loans disbursed by banks and NBFCs combined as of March 2024, according to RBI.
Investors have been bullish on the growth prospects of Muthoot Finance. The stock price of Muthoot Finance in intra- day Friday trade at Rs 2,265 and not too far from its 52-week high of Rs 2,335.
Apart from gold loan growth, of equal importance is the net interest margin (NIM) for players like Muthoot Finance. It was 5.04 % in the December 2024 quarter vis-à-vis 7.23 % a year. And while it has come under pressure for Muthoot Finance, it is better than NIMs of leading banks.
For SBI, NIM in its domestic operations was 3.15 % in the third quarter of FY 25 vis-à-vis 3.34 % a year earlier while for HDFC Bank it was 3.62 % on interest earning assets in the December 2024 quarter vis-à-vis 3.6 % a year earlier.
Change in psychology
The yellow metal has been a traditional savings avenue for Indian households with nearly 25,000 to 27,000 tonnes held in the country and valued at a few trillion dollars, as per various estimates. With the economy slowing down and employment opportunities getting harder in urban area, households are increasingly mortgaging their gold with NBFCs and banks to raise funds for business, marriages or meeting family emergencies.
This is turn has created new business opportunities for banks and NBFCs with new loan customers being increasingly acquired digitally along with online loan repayment options.
Performance in the December 2024 quarter
Muthoot Finance’s standalone net interest income (NII) grew nearly 42.8 % y-o-y to Rs 2,721.4 crore in the December 2024 quarter and it helped standalone net profit rise 32.7 % y-o-y to Rs 1,363 crore in the quarter under review.
Muthoot Finance has highlighted that in its standalone results, net stage III loan assets to gross loan assets was 3.51 % in the December 2024 quarter vis-à-vis 3.23 % a year earlier. Stage III assets in NBFCs are broadly referred to as loans which are overdue for more than 90 days.
Meanwhile, in the case of Manappuram Finance, its standalone net profit grew 5.8 % y-o-y to Rs 453.4 crore in the December 2024 quarter. Also, its net stage III loan assets to gross loan assets was 2.23 % in the third quarter of FY 25, broadly similar to the levels a year earlier.
Investors on Dalal Street
Investors have been bullish on growth prospects for gold loan NBFCs and these stocks have managed to buck the broad sell-off witnessed on Dalal Street with foreign investors exiting. Muthoot Finance has gained nearly 28% over the past three months while the Sensex has fallen three per cent. The share price of Manappuram Finance, too, has gained 9 % during this period.
Growth outlook
The rapid growth in gold loans has not gone unnoticed by the RBI and the central bank had raised concerns in September 2024 and urged supervised entities to review their policies, processes and practices for gold loans.
Meanwhile, Muthoot Finance has got approval from its board to raise upto Rs 21,063.5 crore by issuing redeemable non-convertible debentures by private placement in one or more tranches.
Manappuram Finance has also got approval from its board to raise upto $ 2 billion dollars (nearly Rs 17, 000 crore) via issue of foreign currency denominated bonds in one or more tranches.
The above development comes at a time when both the recent Union budget and the cut in repo rates by the RBI are aimed at reviving growth in the economy and loan demand for the broader banking and NBFC sector.
Muthoot Finance trades at about 18.5 times estimated standalone FY25 earnings and it is 8 times for Manappuram Finance on a standalone basis.
Leading private sector banks like HDFC Bank trade at close to 19 times estimated standalone FY 25 earnings. Investors could wait for further corrections and then consider investing in gold lending NBFCs on a long term basis.
Disclaimer:
Note: The purpose of this article is only to share interesting charts, data points and thought-provoking opinions. It is NOT a recommendation. If you wish to consider an investment, you are strongly advised to consult your advisor. This article is strictly for educative purposes only.
Amriteshwar Mathur is a financial journalist with over 20 years of experience.
Disclosure: The writer and his dependents do not hold stocks discussed in this article.
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