Muthoot Finance diversifying loan book to make customers 'stick': MD

Firm will not sell gold loans to asset reconstruction companies as the RBI is 'not comfortable', says George Alexander Muthoot

Muthoot Finance will not sell gold loans to asset reconstruction companies as the regulator is “not comfortable”, says GEORGE ALEXANDER MUTHOOT, managing director of India’s largest gold loan nonbanking finance company (NBFC). The company had a consolidated asset under management of Rs 89,079 crore, as on March 31, 2024. Muthoot, in a telephonic interview with Manojit Saha, spoke about diversifying business and the loans industry. Edited excerpts:

What is the growth projection for gold loans for the current financial year?

We always give a guidance of 15 per cent but in practice we do more. Last year loan growth was 18 per cent. This year also the minimum we would try is 15 per cent.

Muthoot Finance has diversified its loan book. How much diversification are you aiming for in the next few years?

In the last five-six years we have been diversifying our portfolio slowly, in a very calibrated manner. We have a portfolio of affordable housing. We have a portfolio on LAP [loan against property]. Also, we have personal loans to salaried and non-salaried customers, and business loans to small and medium enterprises. These portfolios we started a few years back and are gradually going up. Today 4 per cent of the portfolio is of these things [non-gold loan]. We also have microfinance which is 11 per cent of the total portfolio. So, 15 per cent of the portfolio diversification has happened. Next three to four years, we want to take it to 20 per cent.

Gold loan is a secured business. What is the need for diversification?

Gold loan is our principal business; we will do the maximum possible gold loan. We also want to diversify because what we saw is many of our gold loan customers taking these loans – personal loans, business loans, affordable housing loans – from elsewhere. We want to make customers stick with us by offering all other products. Gold loan is just a three-month loan.

How fast do you plan to scale up the home loan business?

We started the home loan business soon after Covid-19. Now, we have a Rs 2,000 crore portfolio. It is a good business. Next year we are targeting to take it to Rs 3,500 crore.

Muthoot Finance last year sold around Rs 700 crore of gold loans to asset reconstruction companies (ARC). How much do you plan to sell this year?

All our customers were extremely happy [due to the ARC sale] – there were 85,000 customers. Because once it goes to ARC, they don’t auction it. They [customers] got 6-7 months more time. (As many as) 90 per cent of the customers took back the gold. Gold prices also increased during the time.

I think the RBI is not comfortable with selling gold loans to ARCs. They say ‘why should gold loans be sold to ARCs?’ We have not done it after that.

How much did the cost of funds go up for NBFCs in the fourth quarter? Do you think it has peaked?

In the last three-four months, the cost of funds has gone up by 25 bps (basis points). That is something we can absorb. If it goes beyond that we will pass it on to customers. Cost of funds is almost at its peak, it should stabilise there. So far as risk weights for bank loans to NBFCs are going up, I think only few banks will be affected – those that have low capital. Banks with good capital are not impacted.

Is there a plan to diversify your funding sources?

Our bank funding is 63 per cent. (As much as) 28 per cent is non-convertible debentures. We are now doing more NCDs, either private placement or public issues. Last month we did ECB (external commercial borrowing) for $650 million or Rs 5,400 crore. We are in the process of diversifying our funding. Banks are also happy to fund us because our gold loan portfolio is one of the best portfolios. They don’t have any difficulty in funding us.

The Reserve Bank of India (RBI) has recently clarified that gold loan companies should not disburse more than Rs 20,000 as cash. What are your thoughts on the issue?

This issue was there for five-seven years; this was a grey area. Now they have clarified that Rs 20,000 for all loans for all NBFCs. In the last two months, we have implemented that. We disburse the money via IMPS or UPI, apart from RTGS/NEFT Networks.