The recent fall in gold prices has not led to any contraction in gold loan demand for Kerala-based Muthoot Finance, which is also planning to mop up Rs 400 crore through bond issues in August. So far, the company has not seen any deterioration in the credit quality, according to Oommen K Mammen, the CFO, Muthoot Finance.
"We are fully aware of the ongoing economic conditions. Despite a drop in the yellow metal prices, people are bringing more gold to borrow the same amount. Wherever, we sense stress, we ask borrowers either to close the loan or add more collateral (gold) against their loans taken earlier. Our book is well diversified and does not pose any threat," he told moneycontrol.com after announcing the first quarter (April-June) earnings.
Also read: Muthoot Finance Q1 net slips 21%, provisions dip 3-fold
The outstanding gold loan portfolio rose 10 percent y-o-y to Rs 25,442 crore. The average ticket size of loan was little changed at Rs 39,257 crore. However, the book contracted 2 percent quarter-on-quarter.
The non-banking finance company (NBFC) offers gold loans with a loan-to-value (LTV) ratio of 60 percent. This means, a borrower has to pledge gold worth of Rs 100 to get a loan of Rs 60.
"We have been able to contain the growth of bad assets. Our employee cost has risen due to wage hikes. However, we are going slow on our branch expansions. We may open around 200 branches in 2013-14 as against 400 opened in 2012-13. Our intention is to scorch any market speculations regarding gold loan companies," Mammen said.
The company is likely to raise Rs 400 crore through bond issues to be subscribed by retail and high net worth individuals. Half of the size is for the core issue while the rest is slated for oversubscription.
"The recent movements in the bond market would not impact our issue, which is majorly subscribed by retail investors, not institutional investors," the CFO said.
The company has recently applied for a new bank licence to the Reserve Bank of India.