Muthoot Finance tells CNBC-TV18 that RBI's new guidelines to ensure good and fair practices won't affect them much because they already follow most of them.
However, due to the list of new rules the RBI has imposed on the gold loan business, Alexander says margins will be hurt by close to 1%. “We see a moderation in our growth in the coming years; it may moderate to maybe 20-25%,” he added.
Alexander is most opposed to the RBI rule capping the loan-to-value at 60%. According to him, this will push customers to approach the unorganised sector for loans.
Below is an edited transcript if his interview with Latha Venkatesh and Ekta Batra. Also watch the accompanying video.
Q: Do you think that the new rules are going to reduce the number of people with whom you can do business and therefore reduce volume of business?
A: The instructions which have come from the Reserve Bank of India are in the hygiene factors of maybe ensuring good compliances, good practices etc. We have always been following good practices and fair practices in our business because this is a listed company. I think there are new entrants also coming into this, so the RBI must have felt that a set of good practices has to be implemented.
As you said about the ownership of gold, we take only outsourced jewellery; as you say it may not be easy for people to come with a receipt for having purchased the gold. What we do is we get a declaration from the customer that it’s his own gold and we have some other checks to see whether it’s stolen gold etc.
In our experience, we grant about Rs 60,000 loan a day to a customer, in our experience not more than a handful of stolen gold come into all our branches in a year, so that is been what we have been able to see as well as experience in this ownership part and all the other things whether the KYC yes, definitely we get KYC from all the customers; we capture their photo, we get their identity etc, we diligently follow all these things.
Q: One of the norms which have come out by the RBI is that NBFCs themselves shall not participate in the auction held. Was that something which was undertaken by the company earlier?
A: We have never undertaken any auctions by ourselves. In some states there are registered actionists, and in the others it is conducted in the public with a panel of advocates who come. We give advertisements, we give notices so we have never participated in the auction.
Q: Out of the multiple norms the RBI has issued, which do you think is the most detrimental in terms of business for you?
A: All these things may not be detrimental for business, but capping the rate at 60% may not be a good practice and maybe the RBI should reconsider that. 60% LTV may not be good because it is simply playing into the hands of the local moneylenders.
In the last ten years, the NBFCs have been able to wean away customers from the local moneylenders and local unorganised people and that’s why you have seen good growth in the organised sector. But by capping the LTV at 60%, we may go back to the old stage of customers having to go back to the unorganised sector with all its difficulties or all its bad practices.
Q: What is the impact on your own P&L, would you expect that margins will fall because you have to have a little more expense? You said you give Rs 60,000 gold loans in a day. Can you do that now that you have to establish ownership?
A: Ownership establishment would not be difficult as long as we get declaration. We have to talk to the people also to find out what type of declaration, what type of ownership is generally accepted practice for a household used ornament.
Q: What about margins for Muthoot itself? Do you expect that because of 60% loan to value you may see your margins fall?
A: Margins may fall a bit, maybe 1% margin may fall, but we see a moderation in our growth in the coming years. Last year we were growing by about 50% and prior to that it was 100% growth, but going forward it may moderate to maybe 20-25%.
Overall, we still have an impact of better practices and better controls in the sector.
Q: Are you lobbying against these?
A: There is no lobby; we have to mete and tell our concerns to the regulator.
Q: In the past year or so we have seen a lot of financial NBFCs also opening gold loan business because of the lucrative nature of the business. Do you think that competition will now start reducing because these rules have come in?
A: I think this is a good time for that to happen because there has been a rapid growth in the gold loan sector and many NBFCs and non-NBFCs have been attracted and lot of new players are coming. I think a sense of control, a sense of correct practices etc in the sector is essential
Q: What do you see your return on assets stabilising at?
A: Return of assets must have been about 4.5, but may come down by about 1%.
Muthoot Finance stock price
On November 26, 2015, Muthoot Finance closed at Rs 183.55, up Rs 5.05, or 2.83 percent. The 52-week high of the share was Rs 253.50 and the 52-week low was Rs 152.00.
The company's trailing 12-month (TTM) EPS was at Rs 17.02 per share as per the quarter ended September 2015. The stock's price-to-earnings (P/E) ratio was 10.78. The latest book value of the company is Rs 127.71 per share. At current value, the price-to-book value of the company is 1.44.
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