Tag: manappuram

S&P upgrades Manappuram Finance’s credit rating to ‘BB-’

Banking & Finance

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S&P Global Ratings has upgraded its long-term issuer credit rating for Manappuram Finance Ltd to ‘BB-’ from ‘B+’ as it expects the company to perform better than its non-banking finance company (NBFC) peers over the next 12 months.

This would be reflected in the company’s lower credit costs, above-average profitability, and strong capitalisation, the credit rating agency said in a statement.

S&P said the outlook is stable, reflecting its view that the company will largely maintain its financial profile over the next 12 months, supported by improved economic conditions in India.

The agency also affirmed the ‘B’ short-term issuer credit rating for the NBFC.

“Manappuram’s gold-based lending model with a three-month tenor allows it to recognise asset quality stress early,” the agency said.

S&P underscored that it could downgrade Manappuram if the company’s credit costs increase substantially, particularly in microfinance loans.

“We see limited rating upside for Manappuram over the next 12 months. We would upgrade the company if we believe its funding profile has become more stable,” it said.

Gold auctions

S&P observed that gold prices had fallen significantly till April 2021, from a peak in August 2020.

What’s next for gold loans after the pandemic?

“The stress in the economy owing to the second wave of Covid-19 infections during April-June 2021 and the decline in gold prices led to increased auctions of higher loan-to-value (LTV) loans in the first quarter of fiscal 2022 (ending March 31, 2022).

“The company’s gold auctions are likely to gradually return to their normal level as economic conditions improve,” S&P said.

The rise in auctions have, in part, lowered Manappuram’s average LTV ratio to about 65 per cent as of June 30, 2021, from about 71 per cent as of end-March 2021, providing the company some buffer to absorb price fluctuations, S&P said.

Banks may set up central repository to tackle gold loan frauds

The agency observed that gold price movements play an important role in the cushion available to lenders like Manappuram, which is predominantly in the collateral-based gold lending business.

Gold loans account for close to 70 per cent of the company’s total loans, with microfinance loans accounting for about 25 per cent, and vehicle finance and affordable housing contributing much of the rest.

Non-gold portfolio

S&P noted that stress will likely remain high in Manappuram’s non-gold portfolio, especially in the microfinance business.

“The asset quality of the non-gold loan portfolio has deteriorated sharply over the past two years.

“However, billing and collection efficiency are increasing close to pre-Covid-19 levels, hinting at improving asset quality trends,” the agency said.

Also, the company has pre-provisioned for the microfinance business. Therefore, S&P believes any residual impact can be largely absorbed by the company’s earnings.

The agency has forecast that Manappuram’s risk-adjusted capital ratio will stay above 30 per cent over the next 12 months.

“The company’s core earnings are likely to remain at more than 5 per cent of its average managed assets during this period. This ratio is one of the highest among rated peers.

“Manappuram’s funding profile is also improving with a shift toward longer tenor debt. However, the company still has material exposure to short-term wholesale funding,” S&P said.

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IndusInd Bank inks gold loan co-lending pact with Indel Money, BFSI News, ET BFSI

Banking & Finance

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In what could be tagged as a maiden tie-up in the gold loan space, private sector lender IndusInd Bank has entered into a co-lending partnership with Kochi-based gold loan firm Indel Money. This is the first-of-its-kind conventional gold loan co-lending partnership between a gold-loan focused NBFC and a commercial bank, the Kochi firm, known for long-term loans against the yellow metal, said in a statement on Wednesday.

Under the tie-up, IndusInd Bank will offer gold loans at competitive rates to its customers, which will be originated by Indel Money, Umesh Mohanan, chief executive of Indel Money, said on Wednesday.

“We will originate and process gold loans based on mutually formulated credit parameters and eligibility criteria, under this co-lending partnership. We will also service the customers through the entire life-cycle of the loans, including sourcing, documentation, collection and loan servicing,” said Mohanan who is also the executive director of the diversified group.

The group is engaged in the car and two-wheeler retail, media and film production and EPC contracts.

While IndusInd Bank will take into its book 80 per cent of the gold loan generated by the co-lending arrangement, the remaining 20 per cent will be funded by Indel Money, Mohanan told PTI without disclosing how much incremental growth he expects in the AUM under this agreement.

The co-lending partnership as a pilot has been successfully running through this month and a national launch is expected shortly, he added.

Srinivas Bonam, head of inclusive banking at IndusInd Bank, said this collaboration is in line with the bank’s strategy to bring efficient and inclusive lending solutions.

Indel Money entered the gold loan market, which used to offer only up to three months tenor for a loan, offering up to two years loan. Even after many years, Indel is the only gold loan company offering two-year gold loans, even though others have also begun to offer up to one-year loans now.

Indel has a network of 191 branches spread across Kerala, Tamil Nadu, Karnataka, Andhra Pradesh, Telangana and Puducherry, and is on course to enter Orissa, Bengal and Maharashtra this fiscal, while Gujarat and Rajasthan next financial year. On the other hand, IndusInd has over 2,000 branches across 760 locations.

Indel closed FY21 with a live gold loan AUM of Rs 580 crore, up from Rs 336 crore in FY20 and is targetting Rs 850 crore AUM in the worst-case scenario and Rs 1,000 crore in the best scenario this fiscal, Mohanan had told PTI recently.

Indel, a part of the diversified Indel Corporation with over Rs 1,000 crore revenue last year, made a foray into gold loans in 2013, offering one-year-long loans against gold pledge first and then for two years in an industry that has never looked beyond three months after which they just auction and force-exit the customer.

The impact of its long-term loan offering forced entrenched biggies like the Muthoot groups and of late Manappuram Finance to follow the firm, moving away from their standard three months tenor.



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Fall in gold prices to trigger demand for more collateral

Banking & Finance

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Shrikant Jadhav, promoter of a small manufacturing units at the outskirts of Mumbai, was surprised when he got a call from the bank to top up his gold loan with additional collateral or pay few instalments in advance.

Jadhav is among many businessmen who are now reworking their gold loan exposure with banks and NBFCs which marketed gold loan as panacea of all liquidity-problems till late last year.

The consistent rally in gold prices while the Covid pandemic was at its peak last year made banks and NBFCs to push gold loan to liquidity starved industries. Moved by the safe-haven factor, the RBI in August increased the LTV (loan-to-value) ratio on gold loans to 90 per cent from 75 per cent.

Prices crash

However, the bull run in gold prices came to an abrupt halt early this year and gold prices crashed from a record high of ₹56,200 per 10 grams last August to ₹46,446 on Monday. The excess liquidity sloshing around in the global economy has pulled down gold prices and expectations are that it may go down further till inflation starts worrying central banks.

PE Mathai, CEO, Muthoottu Mini Financiers said all its gold loans come with mark-to-market limit, which gets triggered when gold loan prices go below a certain point.

“The ultimate aim is not to auction the gold. We contact the customer if prices are coming down to either remit part-payment or bring additional security or close the account,” he added.

For about 15 products, it has also reduced the tenure to 90 days from the earlier 270 days. For the remaining, the tenure was maintained at 270 days but the LTV was brought to 50 to 55 per cent, said Mathew Muthoottu, Managing Director, Muthoottu Mini Financiers.

The organised gold loan books of banks and NBFCs are expected to grow 17 per cent to ₹4.05 lakh crore in FY21 against ₹3.45 lakh crore logged in the previous year.

Customer sentiments

VP Nandakumar, Managing Director, Manappuram Finance said a relatively sharp decline in gold price has affected sentiments and some customers have faced challenges when resetting or renewing their loans at the new LTV which would be lower than their earlier loan.

“We bear the gold price risk for about three to six months versus about 12 to15 months for the other players. That’s because with short term gold loans, the process of recovery through auctions can happen within one quarter of the default,” he added.

PR Somasundaram, Managing Director, World Gold Council said the fall in gold prices will not lead to these loans becoming an NPA as there is enough headroom for the lenders to recover their money.

Umesh Mohanan, Executive Director and CEO, Indel Money said as per the contract with the borrowers, whenever the total outstanding of the loan reaches 90 per cent of the current metal value, a margin call can be made; if it touches 95 per cent, then an auction of the collateral can be a remedy.

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