AUM growth to be flat in Q2; 10-15% in Q3-Q4: Muthoot Fin

Due to the regulatory hurdles recently imposed by the Reserve Bank, India’s leading gold loan company Muthoot Finance saw assets under management decline by 5%. However, managing director George Alexander tells CNBC-TV18 that this trend will reverse soon, and the company will go back to posting strong AUM growth.

“This was mainly on account of the uncertainties, fears and the negative perception created out of regulatory action,” explained Alexander, adding that AUMs will grow by 10-15% in the third and fourth quarter of FY13. When it comes to margins and profit, Alexander says that the new rules and provisions will not hurt Muthoot because they have always followed stringent rules. Below is an edited transcript of his interview with Latha Venkatesh and Reema Tendulkar. Q: What is the picture in terms of the net interest margins (NIM) for Q1 and what the outlook on that would be going forward? A: For the year the NIM has been almost constant from 10% it has come to 9.86%. Q: You have been able to manage 40% growth in terms of both total income and EBITDA. Can this be the pace of growth we can expect? What is the pace of growth of the Assets Under Management (AUM)? A: The AUM in this quarter has actually come down by 5%. From Rs 24,400 crore, this quarter it has come down to Rs 23,000 crore, so we have de-grown by about 5%. This is mainly on account of the uncertainties, fears and the negative perception created out of regulatory action. All the securitization which we have done has also come down. So we have focused on honoring all our commitments in time and therefore we grew in this quarter by negative 5%. However, all the other things are very good for the company. Q: In spite of the fall in AUMs, if you have been able to generate a higher interest income as well as a higher profit, how do you expect the total income pace to grow? Do you think you can maintain this 30-35% growth? A: No, that will also depend on AUM growth in the coming quarters. We see the AUM growth to be flat in the next quarter. But in third quarter and fourth quarter, we hope the AUMs will go up because the uncertainties with regard to the regulator should subside. Maybe the regulators and the public perception of this product as a gold loan should improve in the next three quarters. So by third quarter and fourth quarter we see the AUMs also going up and if the AUMs are also going up we see a better impact on the profit also. _PAGEBREAK_ Q: Do you see any increase in terms of your expenses to cater to the new rules that the Reserve Bank has put, and for customer service, are your spreads or your margins falling because your costs have increased? A: No, I think our costs will not increase. We have been the best company with respect to servicing our customers and perception of customers etc. Tamper proofing, etc we have been doing for ages, so probably it is only the new companies this will impact. As far as Muthoot is concerned, we have been following the best practices all round. Q: Could you tell us what the lending rates were in this quarter and what they could look like going forward? A: The average lending rates this quarter was 21.4%. So probably if the Reserve Bank also brings down the rates and we are able to access lesser cost funds from the bank, our lending rates will definitely come down further. Q: Can you give us an idea of how the gross NPL picture is? I think last time you did 0.56%. Where does it stand now? A: Our credit losses have remained almost the same. Last year our credit losses were Rs 6.9 crore and for this quarter the credit loss is Rs 1.6 crore. Q: Give us some guidance as to how much you can expect AUMs to increase in the second half as well if you can guide something in terms of income and profits? A: We cannot expect any large growth in the third and fourth quarter, but probably our expectation is if these things are going well we can expect a 10-15% growth in the AUMs by the third and fourth quarter. If there is 10-15% growth in the AUM, profit also should increase proportionately by about 10-15%. Q: Does the price of gold have any impact on the amount of gold loans sentimentally or psychologically? We have seen global gold prices stabilize and even fall from that USD 1,900 levels. In rupee terms it is not really a fall but clearly the mad rise in gold, 30-40% that we saw up until 2011 has gotten arrested. Does that impact business in any fashion at all? A: I don’t think it impacts the business in any fashion because the total gold with Muthoot is 130 tonne of gold and in the total organized sector, with banks and the NBFCs, the total gold which has come into the organized sector as gold loans is just little less than 1,000 tonne only. Actually India imports almost 1,000 tonnes every year. So there is no impact on this. Since the price of gold comes down a bit, instead of bringing four bangles for pledging the person may have two. It is mainly based on the need, it is not a selling which is happening. That’s also a misconception with people that it is selling that is happening.