We need to have a level-playing field with banks: Manappuram Finance CEO

Manappuram Finance has diversified into vehicle loans and microfinance even as its traditional preserve — the gold loans business — has seen the entry of banks. This was due to the relaxation in loan-to-value (LTV) norms during the pandemic. The firm’s managing director (MD) and chief executive officer (CEO) V P Nandakumar makes a case for equal treatment with banks in an interview with Raghu Mohan. Edited excerpts:

What’s your outlook on gold prices given that the Fed is not done yet with its rate hikes? And, what does it mean for those who have availed of gold loans?

Gold prices will only increase; it will hover around $1,750/Oz to $1,800/Oz. It’s already on expected lines because the Fed may further raise its policy rate. Our average loan-to-value (LTV) is less than 70 per cent whereas customers have the ability to borrow up to 75 per cent. The underlying collateral is very precious, and while borrowing, they keep in mind that this has to be redeemed in three, or six months. Here, the collateral is cash equivalent and can be liquidated in case of a non-performing asset (NPA), unlike in a housing loan where the borrower holds the collateral. And, even with repossession, the selling of a mortgaged product is not easy. The customer also knows pretty well that if he doesn’t have the cash flow to redeem it, he will lose it (the gold).

Do you think there’s a case for revisiting the LTV for non-banking financial companies’ (NBFCs’) gold loans? During the pandemic, banks were allowed an LTV of 90 per cent though its back to 75 per cent now.

I think so. I don’t see any restriction for banks as some of them are lending at 90 per cent LTV even now in the name of agricultural loans by taking on additional security. NBFCs have an LTV restriction of 70 per cent, and it’s not a level-playing field. I hope the RBI will look into this issue. Banks are able to offer a lower rate of interest because their overall borrowing cost is much lower than an NBFC. But customers are still coming to us because our target audience’s borrowing is around Rs 50,000 and the average life of the loan is around 3-4 months only. So, for these customers, going to a bank for small-ticket loans and wasting a day’s wages may not be economical. Of course, it makes sense to go for bank gold loans if customers are borrowing larger ticket sizes, like Rs 10 or Rs 15 lakh, and for a longer period.

Has the entry of banks into the gold-loan business affected the relatively better off NBFC customer segment?

The largest lenders in this segment are neither banks nor NBFCs — it is the unorganised lenders. Their numbers run into millions. There’s no record of them, and the estimate is around two-thirds of lending is coming from them. But what happens is a lack of transparency and usurious rates of interest. While there’s some weaning away of our customers by banks, the opportunity to grow will not come down because of the large market. India has been importing almost 1,000 tonnes of gold (annually) over the past several years. And, what has come into the gold market is only a miniscule portion of this. With more awareness, the taboo on gold loans will wane.

Your thoughts on what more can be done to monetise the gold lying idle.

The gold holding in the country is estimated to be between 18,000 tonnes and 25,000 tonnes. A major portion of this is not with government authorities, or high net-worth individuals (HNIs), but with rural households. A minuscule amount is with family-run temples, among others. That’s because when banking facilities were not reachable to the rural areas, people used to invest whatever surplus they had in gold. It (gold) continues to be treated as a store of value even now when the density of banking has increased.

You have diversified into microfinance. But given that this business sits adjacent to the community that avails of gold loans from you, is it enough by way of diversification?

We have diversified into microfinance, two-wheeler and car finance, affordable housing and financing MSMEs (micro, medium, and small businesses). Many of our customers are from the lower-middle class. They wanted to buy two wheelers, or avail of affordable housing loans and used to enquire from us. So, rather than be product-centric, we took the customer-centric approach. And many women customers also wanted more by way of loans and said that they had availed of microfinance from other lenders. We thought it would be mutually beneficial and for cross-selling opportunities; We started to offer microfinance because our knowledge is in dealing with those at the bottom of the pyramid.