Muthoot Fincorp to reorganise lending portfolio to 70% gold loans, 30% others in 4 years: CEO Shaji Varghese

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Muthoot Fincorp will reorganise its lending portfolio with 70 percent share of gold loan and 30 percent other loans, in the next four years, said chief executive officer Shaji Varghese in an interview with Moneycontrol.

“The portfolio will get reorganized to a 70:30 into 4-5 years of period because we are offering new products and not because an existing product is reduced,” Varghese said in the interview.

Currently, Varghese said that the non-gold loan portfolio is just 11 percent and gold loan in 89 percent. "Gold loan book has very much grown. It is not that we want to reduce gold loan because we are offering the other products in the same balance sheet , the portfolio composition will get reorganized," he added.

He also said that in last one year, the company has witnessed an increase in borrowing cost of 22 basis points (Bps).

The company’s consolidated cost of funds increased by 22 basis points, to 9.39 percent as on September 30, 2024, as compared to 9.17 percent as on September 30, 2023.

Edited excerpts:

In September, RBI has asked banks and NBFCs to review their policies and practices, have you done it?

The regulator has directed us to review and we have reviewed it. We have found our time tested processes and been regulated for so many years and every year for decades together is meeting the direction both in spirit and the direction which the RBI has given to us.

Is there any plan to sell any distress loans to ARC?

There is nothing in the pipeline and intended to do anything as well. Our net NPA is only 0.5 percent. The gold loan business, that really doesn't happen because, it's a hugely LTV regulated business. We don't have any stressed book. There is, of course, always will be NPA as the ongoing business and we follow the procedure to auction.

Will there be reshuffling of your loan portfolio and reduction in gold loans?

We want to strengthen our product offering to our consumers through mortgage and other lending product because of that, the portfolio reorganized into a 70:30. We never have any intention to reduce the gold loan. The categories, is built by Muthoot in the history and that's our flagship business.

Other businesses will show up more because there is no base. We don't have that business existing. If you just quantify that now, 98-99 percentage of gold loan business, now around 11 percentage of the revenue is non-gold and 89 is a gold loan portfolio.

Gold loan book has very much grown. It is not that we want to reduce gold loan because we are offering the other products in the same balance sheet , the portfolio composition will get reorganized. The gold loan will continue to grow, but as we are offering the other products, it will get reorganized.

There is no intent to reduce gold loan at all. This is to strengthen our offering and in turn meet the consumer's demand and requirement. The portfolio will get reorganized to a 70:30 into 4-5 years of period because we are offering new products and not because an existing product is reduced.

What is rationale behind 70:30 ratio in lending portfolio?

It is originating from the consumer requirement. Today Indian families have the requirement for loan against property to expand their business. Businesses are expanding in India. They are doing trade modernization. We are meeting the requirement of the consumers and these products are utilized to meet the customer requirement.

Has your borrowing cost gone up in last one year because most of your borrowing is through banks?

Around 73% of our borrowing is from bank because it suits very well for our business because gold loan, the maximum tenor is offered is only 12 months. Bank borrowing suits very well because short tenor in nature, there is no ALM mismatch.

We also have NCD issue of 19 papers, which is around 14.29 percent of total borrowing. This is followed by commercial papers, of around 2-3 percent. We have a bit of subordinated loans, which is another 3-4 percent.

Borrowing cost has slightly moved up because the overall lending rate has gone up. It is not to do with risk weight change per se, because the risk weight has more impacted the unsecured loan. We are predominantly a secured lender. The company’s consolidated cost of funds increased by 22 basis points, to 9.39 percent as on September 30, 2024, as compared to 9.17 percent as on September 30, 2023.

We don't expect any further increase.

Do you have any plans for NCDs or this will be the last for this financial year?

We have an approved limit and within that limit, there is further room available for NCD. We will look forward to issue more NCD in Q4 as well.