Gold loan major Muthoot Finance Ltd (MFL) expects to maintain its net interest margin at 9.5 to 10 per cent in this financial year as it sees no negative impact arising from the prevailing high interest rate environment. The Kochi-based non-banking finance company is also clear about passing on any hike in rates to the end borrowers.
Company managing director George Alexander Muthoot said, “Since the loan amounts are low, with a ticket size of Rs 30,000 to Rs 35,000, the demand is not sensitive to interest rates. When banks raise rates, we are also able to pass them on to customers.”
He said this was an important factor that would help it achieve near-100 per cent growth in business this year. Its current average cost of funds is 11.5 per cent, and the average rate it charges is 21.6 per cent.
MFL reported 125 per cent growth in business in the first three months of the current year, and over 100 per cent growth in 2010-11. It assets under management (AUM) grew from Rs 3,300 crore in 2009 to Rs 7,400 crore in 2010 to Rs 15,810 crore in 2011. At the end of June this year, its AUM was at Rs 17,900 crore, from 5.1 million accounts.
The other factor driving the growth of the company's and others’ gold loan business is the estimated 18,000 tonnes of household gold in India and an annual import of 700 tonnes, most of which finds its way to jewellery items.
According to Muthoot, the entry of banks into gold loans made the business more respectable. Citing a Crisil study, he said the gold loan market grew at a compound annual growth rate of 50 per cent over the last four years. Its gold holdings grew from 15 tonnes in 2005 to 120 tonnes as of June 30, 2011.
More From This Section
Muthoot was in Hyderabad to announce the company’s public issue of secured non-convertible debentures to raise Rs 500 crore, with an option to retain an over-subscription of an equal amount. The issue opens on August 23 and closes on September 5.
He said the purpose of issuing NCDs was to diversify its sources of funding. Its current liabilities are Rs 7,200 crore to banks, Rs 4,400 crore to privately placed retail NCDs, Rs 1,100 crore through bilateral arrangements, among others. Out of Rs 18,000 crore, Rs 2,396 crore is equity and the rest is debt.
The company has 19.5 per cent market share in gold loan business, followed by Indian Overseas Bank, Indian Bank, Manappuram Finance and South Indian Bank.
It offers 72 per cent of the value of the mortgaged item as loan, on the basis of a monthly average of gold price, currently at Rs 2,600 per gram for 22-carat gold. It sanctions 60,000 loans a day, across its 3,150 branches, according to Muthoot.