MC Exclusive | Seeing tough competition from banks, Muthoot Finance to step up gold loan growth, says MD & CEO

Muthoot Finance on February 7, reported a 12.4 percent year-on-year (YoY) decline in net profit at Rs 901.6 crore for the third quarter that ended on December 31, 2022.

Gold loan-focused non-banking financial company (NBFC) Muthoot Finance is targeting a 5 percent growth in assets under management (AUM) in the gold loan sector by March 2023, managing director and chief executive officer (MD & CEO) George Alexander Muthoot told Moneycontrol in an exclusive interview on February 9.

The NBFC, which is one of the largest gold loan lenders, is expecting tough competition from banks and rivals, Muthoot said.

The company, on February 7, reported a 12.4 percent year-on-year (YoY) decline in net profit at Rs 901.6 crore for the third quarter that ended on December 31, 2022.

In a detailed chat, Muthoot also spoke about a range of other issues, including the group’s focus on MSMEs (micro, small and medium enterprises), retail and housing segments. Edited excerpts:

What is the overall assessment of your Q3 results?

We’ve started seeing some growth in our business, mainly in November and December 2022. Growth has been slow and not what it was a year back.

We are expecting growth momentum to stay in place till March, and the gold loan portfolio to grow by an additional 4-5 percent till March 2023. Our profits have been stable and we grew 5 percent quarterly.

Your profits fell on a YoY basis….tough competition in the gold loan sector?

There hasn’t been much growth in the last 2-3 quarters due to tough competition from banks which are also working in this sector. They are getting more customers.

Some banks and NBFCs were aggressively moving towards the gold loan sector but in the last few months, many realised that gold loan is a very operationally challenging business. They started facing issues in acquisition and storage, and frauds, and started realising the difficulties in the sector.

Going forward, their intensity and appetite for gold loans will also come down.

In the short term, NBFCs focused on gold loans could face some challenges but on a long-term basis, the focused NBFCs would continue to grow.

You are aggressively expanding your branch network…

We have our branches everywhere in India -- be it north, south, east or west. We got the RBI licence for opening 150 branches and we will further open 20- 30 branches across the country. Wherever we see potential, we are trying to build our network.

What are your thoughts on RBI’s regulations on the gold loan sector?

For gold loans, regulations started coming in the last 10 years from the RBI. It does periodical inspections of operations and branches. We have been keeping a check on all the regulatory requirements.

We, as an upper level NBFC, see us at par with banks. On this front, we do not expect regulatory initiatives coming in from the regulator.

What is your business outlook for 2023-24?

We would like to expand across sectors, with gold loan as our priority. Our focus would be more on gold loans. A year back, gold loans comprised 90 percent of our total portfolio. Now, it is 87 percent.

On the plus slide, we have seen growth in the non-gold loan sector. During the pandemic, we started personal loans, microfinance, vehicle and home finance and MSME lending. We witnessed slow growth in these sectors in the previous years, but the last six months showed strong numbers in these sectors.

We expect our non-gold loan portfolio to grow to 14-15 percent from the existing 13 percent in the next 3-4 years.

What do you think of the Budget 2023-24 for NBFCs?

Earlier, listed NBFCs used to issue non-convertible debentures (NCDs) to retail investors. Retail investors in the debt market are few and far between. We used to issue NCDs and we had no tax deducted at source (TDS) but this budget took away that facility.

We feel it has dampened retail investors and this has had an impact on depositors.