Non-banking financial companies (NBFCs) have been under pressure after the announcement of demonetisation but the tides turned today after Bharat Financial announced that its overall collection efficiency since November 11 has been a stunning 97 percent.
There has been some appreciation for NBFCs stocks in today's trading session.
Speaking to CNBC-TV18, George Alexander Muthoot, MD of Muthoot Finance said that the company is encouraging customers to take up online systems like NEFT and RTGS for payments post demonetisation.
Being a gold finance company, there are no equated monthly installments (EMIs) and customers just have to pay the interest on loans, so efficiency in that respect does not affect the company much, he said.
However, he further added that there is concern about reduced advances, which have come down by 40 percent since demonetisation.
Below is the verbatim transcript of George Alexander Muthoot’s interview to Latha Venkatesh and Reema Tendulkar on CNBC-TV18.
Latha: How is life after demonetisation? How was the first week, the second week and now the third week?
A: As we started there was lot of confusions but now people are getting almost used to it. Probably, 60 percent plus of our transactions are being done online and also through the cash we are receiving.
So, 60 percent of advances and 50 percent of releases we are able to do mainly though online and through the cash, the normal cash, the present cash which we are receiving so that is just increasing. Now probably the next week the 60 should go to 70 etc. We are encouraging customers to take these online systems like real-time gross settlement systems (RTGS), national electronic funds transfer (NEFT), immediate payment service (IMPS) etc and probably it is catching up very well.
Reema: In week one if you could tell us what was the collection efficiency ratio for the company as well as the disbursement and what would it stand off as of the last week?
A: There is one small difference in gold financing companies, we don’t have EMIs, so, there is no monthly EMIs etc. For us the loan people need to pay only the interest maybe one month, two month, three month, so there are no EMIs. So, efficiency in that respect does not affect us much. That is an advantage with a gold loan company because it is fully secured and there are no EMIs.
Latha: What about loans that fall due, I think that is what Reema is asking? I mean loans falling due for repayments are the wheels going, are people paying or because of the cash crunch they are not paying up?
A: For us we still have time 9 months to 12 months, after 12 months only it becomes an non performing loan (NPA) and so for us there is plenty of time. We can afford to have one month or two month of postponement of these specially because we have the collateral with us. We are not concerned with that, but we are concerned in the sense that the business has come down. The advances are come down by about 40 percent that is a concern which I think should pick up in the weeks to come.
Reema: The customers who were due to pay in the last three weeks, what percentage of them perhaps have asked for the period to be extended by one to two months, asked for some sort of a credit?
A: We don’t need that. They can pay at anytime they like.
Reema: No, if their period is over.
A: The period is over but we always give them one month extension, two months extension because for us at this point of time we are going slow with the auctions. So, that is a place where we redeem the gold if they are not paying. We go little slow on the auctions because we can afford to do that because the collateral with us. 3.16
Latha: Some of the small banks whom we spoke to earlier were worried that the Reserve Bank of India (RBI) giving a two month extension before you classify a loan as an NPL is being misinterpreted as a repayment holiday. Any such miscommunication in Kerala and therefore are payments stuck?
A: No, I think for vehicle finance companies and people with EMIs -- this is actually misinterpretation by the people who have to pay the loans. As far as gold and I am again repeatedly saying -- so for that the impact is not much there.
Reema: With your advances down 40 percent in the last few weeks what would be the net interest income (NII) growth that you are anticipating in Q3?
A: The advances are down; the releases are also down, so, it will be status quo there. The advances are down by 50 percent and the releases are down by 60 percent.
Latha: What do you think is the bottleneck? The fact that there aren’t enough withdrawals or the fact that there is no cash in the system and therefore people are not doing business or will it be more long term in the sense people are psychologically getting more risk averse or business averse?
A: I don’t think this risk averse and business averse things are there; our loans are just, average is about Rs 40,000. However, as soon as cash availability or the denomination of cash availability improves, which I am sure will improve in the next three to four weeks, things start getting normal. Once things start getting normal, gold loan companies have an advantage because other loans, etc may be a little difficult in forthcoming and gold loan will be the easiest and simplest for people to avail. So, as soon as the cash availability, the currency availability improves, gold loan I am sure will start really picking up.
Reema: Any worries on your asset quality, would it spike up in this quarter, your gross NPAs?
A: No, we have no worry on that at all because in this NPAs will not hike up and gold is always with us unless there is some big fall in the gold price and all those things, there is nothing to worry on gold loan companies.