Muthoot FinCorp, the flagship company of the Muthoot Pappachan Group, aims to double the revenue share from its non-gold lending portfolio to 30% over the next three years. Chief executive Shaji Varghese speaks to Narayanan V about the diversification strategy, impact of the RBI’s draft gold lending guidelines and more. Excerpts:
What led to the 20% decline in Q4 net profit?
Revenues for the quarter grew 23% year-on-year to ₹1,478.59 crore. However, this didn’t translate into higher profits due to increased expenditure. Being the end of the financial year, we incurred higher marketing costs. We’ve also been expanding our capacity to meet future demand. Over the past 12 months, we added 200 new branches, taking the total number to 3,700 across the country. Employee costs associated with these new branches were fully reflected in Q4. These are productive investments, and we expect to see revenue benefits from next year. That said, our full-year net profit rose 40% to ₹787.15 crore in FY25.
What is your product diversification strategy?
Three years ago, 98% of our revenue came from the gold loan portfolio. At that time, we had set a target to bring 15% of our revenue from non-gold lending by 2025. We have now achieved that. Our next goal is to increase the non-gold revenue share to around 30% over the next three years, by March 2028. This will come through product diversification, and not by reducing the gold loan business.
Our target customer segment remains the same — lower and middle-income borrowers — but we are diversifying product offerings. For instance, we offer loans against property products for up to 15 years. We also offer digital loans ranging from six months to two years, and small unsecured business loans with tenures of up to three years. So, we’re meeting different consumer needs through new and incremental products and services.
Are you seeing any impact of the RBI’s draft gold lending guidelines?
Even if implemented in its current form, the draft guidelines won’t affect growth prospects of gold-loan NBFCs. The RBI has brought clarity in areas like clearly categorising loans for consumption and productive purposes.
However, there are certain areas that need more clarity. The Association of Gold Loan Companies has made representations to the RBI seeking clarification. A key area of concern is the loan-to-value (LTV) calculation. Since gold loans typically follow a bullet repayment structure, the draft proposes inclusion of the entire interest payable over the loan tenure in the LTV cap. This would mean that customers would need to pledge more gold to borrow the same amount, which will effectively reduce their ability to raise funds.
From an NBFC perspective, the impact is limited as the rule creates a level playing field. But from a consumer standpoint, it is a disadvantage, as borrowers will need to bring in a higher quantity of gold to avail of the same loan amount.
It’s also important to note that LTV is already regulated and is based only on the bullion value — not on making charges or other costs. This means there’s already a cushion built into the LTV. That’s good for lenders, as it protects them in case of price corrections and improves recovery safety. But consumers may lose out in terms of the loan amount they can raise against gold.
Will purity certificates or proving ownership also be a challenge?
Not really. NBFCs like ours already carry out internal valuation and purity checks, so there’s no challenge on that front. As for proof of ownership, we obtain a declaration from the customer. It’s not in the form of a receipt, which isn’t practical in India — and the regulator isn’t asking for that either. We assess the purity ourselves and communicate it to the customer. Based on that assessment, we arrive at the LTV. Not every customer gets credit based on 916 purity (22 carat). If the gold is of lower purity, LTV is accordingly adjusted. That’s also why we don’t face losses during auctions as the valuation was agreed upon before disbursal of the loan.