NII to remain constant on low borrowing cost: Muthoot Fin

George Alexander Muthoot, MD, Muthoot Finance spoke about the third quarter performance and the outlook going forward.

Going forward, he expects the net interest income (NII) number to be consistent and profits to be driven by assets under management (AUM). Answering a query on NII degrowth seen by the company for the past two quarters, Alexander says here after it would remain constant on back of low borrowing cost. He is also very optimistic of the AUM growth where the number has gone up from 21,000 to 22000. So even though the NIMs remain same, when the AUMs grow, profits will increase, he adds.The net interest margins (NIMs) for the quarter ended December came in Q3 came in at 9.5 percent at Rs 529 crore compared to 10.17 percent in the earlier quarter. The net profit for the company was down 20.7 percent at Rs 154 crore versus Rs 194 crore  year-on-year. Net Interest Income was down 6.9 percent at Rs 529 crore versus Rs 568 crore for the same quarter last year.The total income came in at Rs 1067 crore versus Rs 1196 crore year-on-year.

With regards to NPAs,  he says all the current NPAs will be recovered in two month except the gold ones and then there will be new NPAs.Below is the transcript of George Alexander Muthoot's interview with Sumaira Abidi and Reema Tendulkar on CNBC-TV18.Reema: Can you tell us what the NII number is?A: Net interest income is 529 crore for Q3.Sumaira: There was an expectation this time that recoveries have gone up. Can you take us through what the asset quality picture looks like?A: Asset quality has become better and the non-performing asset (NPA) percentage is 1.96. Sumaira: For you gross NPA, right?A: Gross NPA it is 1.96 percent and net is 1.5 percent.Sumaira: What is your recovery figure?A: It is a dynamic number. We have always been telling that NPAs are dynamic. The NPA which you see today, in two months time, all these accounts will be recovered and new NPAs come. Only NPAs of gold remain because gold is with us but these are not hardcore NPAs like hard defaulters etc. Reema: Can you help us with what the net interest margins were this quarter?A: The net interest margins were 9.5 percent Reema: That means it has come down on quarter on quarter basis compared to 10.17 percent. For at least past two quarters the company has been reporting NII degrowth, in Q2 also your NII was down 7 percent at 529 crore, this quarter it implies a degrowth of 7 percent. For how many more quarters should we expect your NII to degrew?A: Net interest income maybe constant hereafter but the profits can come more from the assets under management growth, which is showing signs of growth because the assets under management which around 21,000 has now touched 22,000. So, the assets under management, when it grows although the net interest margin is same, the profits will certainly increase. Sumaira: The other data point that I would like to know is your assets under management because till last quarter, till Q2 we had seen about five quarters of consecutive declines over there. What is the growth there looking like?A: In the last two quarters we have seen small increase of Rs 400 crore approximately. We are seeing assets growing also. So, the slide has stopped and it is starting to grow but albeit slowly, it takes little more time. Reema: Your AUM has started growing this quarter and you expect the degrowth in NII to also stop in this quarter and hereon it should improve.A: We are seeing the borrowing cost also coming down, so we should see the NIIs being constant hereafter. Reema: What led to decline in your net interest margins on quarter on quarter basis and what can we forecast going ahead?A: The net interest margins should continue on 9.5 percent and that should be going forward. The reason is that there is competition, so we have to be market competitive also. Sumaira: What about your provisions, what have you done by way of that this quarter?A: We have a standard asset provision which is more than the statutory requirement of 0.25. We have about 0.46, which are almost double the standard asset provisions. The other provisions for bad debts are not required this time because we already have sufficient and more provisions in the NPA provisions. Reema: What can we expect on your gross NPA as well as net NPA ratio going ahead as well as on the recovery front? How is it been so far this quarter?A: Our NPAs are not hardcore accounts; it is dynamic because those accounts which have crossed the statutory time limit become NPA but all these are fully secured with 100 percent plus collateral of gold. So whenever we auction the gold, we get back our money. So whatever delay in auction is what we are seeing is NPA. What NPAs you see today of Rs 500-400 crore, in the next two months it will be completed, full thing will come off but new set will come up. Reema: This question on the back of big decline we have seen in gold prices - it is quite likely that the loan you had given in lieu of gold was when the gold prices were much higher and now that we have seen a decline, if you try and recover it by selling gold, you are probably going to be getting a lesser amount. So what percentage of your portfolio is in lieu of gold which was given at higher prices?A: All those which were given at higher prices have gone away from our books in the last quarters and the gold price decline has started almost a year back. So whatever we have now, are more current loans where we keep 25 percent full margin or maximum loan to value is only 75 percent but our average loan to value is less than 70. So, today the accounts which we have in our books are very comfortable with regard to the asset quality and we will not lose any capital or interest in the coming quarters on these two.