Muthoot Finance to grow loans at a subdued 16-25% in FY13

Saikat Das
Moneycontrol.com

With regulations in the loan-against-gold segment becoming tighter, Kochi-based Muthoot Finance's loan book is likely to grow at a much slower 16-25% this financial year, compared with 55-100% in the past. RBI has directed banks to reduce their lending exposure to gold loan companies from 10% to 7.50% of their net owned funds. Moreover, it fixed the maximum bar of loan to value ratio at 60% (vs 65-75% earlier). This means, a borrower has to pledge gold jewellery worth Rs 100 to get a loan of Rs 60.

Muthoot Finance shares have tumbled more than 15% in the last one month compared to a 1.50% fall in the broader index – BSE Sensex.

In an interview with Moneycontrol.com, the company's Managing Director George Muthoot Alexander said the situation is not as dire as the stock market is making it appear.

Below is the edited excerpts of the interview:

Q. How do you propose to make good the shortfall in bank credit?

A. As on today, we are dealing with 30 banks and none of the banks have surpassed the 7.50% mark. There is elbowroom again (to get credit from them). As and when required, we can also connect more banks in addition to our existing lenders.

Q. Are banks reluctant to extend credit to Muthoot?

A. That is a call for each bank to take. All banks have existing gold loan portfolios and they know the strength of this business. The business model itself is good and that’s why lenders themselves want to be in this space. I have been talking to these banks for the last 3-4 years. None of them has any concern about our business model. Gold loan NBFCs have a much bigger network and wider reach to do the business than any other institution.

Q. How do you see your loan book growing in FY13?

A. We may not see any exponential growth like 55-100% (in the past).  This year, it will be subdued growth. Loans may expand in the range of 16-25%. Going forward, we will see how things pan out. We are doing our business in a way that is useful to the community that needs such loans. For banks to do this kind of business with greater magnitude is not practical. NBFCs offer the last mile connectivity when it comes to gold loans.

Q. What about other fund raising sources?

A. Going forward, we would like to diversify our funding sources. Banks’ credit fund is just one of the sources. Secondly, we will continue to raise funds through non-convertible debenture issues. The commercial paper with mutual funds is another way and finally from net owned funds. We propose to grow each of these in the current year. With market (bond yield) easing a bit, we would be doing CP issues more freely.

Q. Given the recent tightening of regulations, do you think investors will be a bit wary of subscribing to your issues?

A. Why should they be? The business process is excellent. There is no regulatory concern; anybody who is familiar with the business has good comfort level with gold loan NBFCs. Actually, we have brought up this business model from unorganized sector. Hence, people are not fully aware of its operations.

Q. Maximum  LTV ratio is now set at 60%. Has it led to any contraction of your book so far?

A. Due to this, we may see some customers going back to traditional money lenders after two months. Our own company has 3,700 branches. More than 50% branches are in rural and semi-urban areas wherein traditional moneylenders and pawnbrokers are active. We have been talking to RBI as well on the issue. In the last ten years, gold loan companies have brought a set of customers to the organized lending sector. The regulator has appointed a (K V Rao) committee. It will look into the issues after considering views from different stake holders. However, our loan book has not contracted so far due to this, even marginally.

Q. Do you have any plans for new business segments going forward?

A. We do not have any plan to diversify our business to any new segment like unsecured loans and others.

saikat.das@network18online.com