Gold loans business is not a bed of roses, opined George Alexander Muthoot, Managing Director, Muthoot Finance Ltd (MFL), referring to a few large non-banking finance companies (NBFCs) taking the plunge in this line of business to diversify their loan book.
In an interaction with BusinessLine, Muthoot, who oversees consolidated assets under management of about ₹61,000 crore (of which about 90 per cent is gold loans), observed that more players getting into the gold loans business means that they see good prospects. He emphasised that this also vindicates MFL’s business model, honed over the last eight decades.
Excerpts:
Many lenders have jumped on the gold loan bandwagon. How are you fortifying your business?
We have a steady business. We have not changed our focus. The gold loans business has good prospects. The market is huge. There is space for everybody. And whoever is focussed will undoubtedly get good business.
All the entities that have entered the gold loans business will face a lot of operational challenges going forward and shift focus. This is what happens usually.
The business is operationally very intensive — taking the gold, its safekeeping, returning it, tackling frauds, etc.
New players are going to experience operational challenges. We have been through business cycles. This business is not a bed of roses.
So, you don’t see competition as a dampener?
We do not look at competition as a business dampener. It will only prompt serious players to intensify their focus on the business. More people getting into this business means they see good prospects. That means what we have been doing all along has been vindicated. The competition will be there. It will only widen the market.
I also feel is that customers who were earlier reluctant to take a gold loan are also interested in this product now. They see it as an alternative borrowing avenue.
Given that the 1st quarter was a washout due to the second Covid-19 wave, will you be able to achieve the 15 per cent year-on-year AUM growth target?
Our standalone AUM is around ₹55,000 crore. We have given a guidance of 15 per cent growth. In the first quarter, we were not able to do much. In the second quarter, we were able to achieve about 5 per cent quarter-on-quarter growth. So, in the third and fourth quarters, we should be able to make up and reach at least 15 per cent growth.
We will continue to grow at a 15 per cent pace over the next three-four years. This is a reasonable rate because the base is also going up.
Three years back, our average loan ticket size was about ₹35,000. Today, it is about ₹60,000. This increase is directly proportional to the gold price and the overall appetite for gold loans
As RBI has whittled down the regulatory arbitrage between banks and NBFCs, will you consider converting into a bank?
In the last three-four years, we have been closely monitored by RBI as we are a Systemically Important Non-Deposit-Taking NBFC. All the regulations applicable to banks are almost applicable to us. There is very little regulatory arbitrage between banks and NBFCs.
But then, what is the advantage of becoming a bank? What is the big advantage in getting low-cost deposits? Going by our rating, we can also raise cheap resources. We may not have the luxury of zero interest rate current accounts and low-interest rate SBI accounts etc. But the differential rates of interest on resources between NBFCs and Banks is actually narrowing.
As on date, we don’t see any advantage (on converting into a bank). But the board has not taken any decision as yet. Overall, in the last several years, the Board has not thought about it.
Given that you have projected your business to grow at 15 per cent yoy, are you planning to augment your capital?
As on September-end 2021, our capital adequacy ratio was at 27.60 per cent…The current level of capital will be adequate to support business growth for three-four years. But accumulated profit (retained earnings) is also there. So, the capital could last longer.
