Muthoot Fincorp, the flagship company of the Muthoot Pappachan Group, is planning to cut down its gold loan book by 30-40 percent in 3-4 years, says chief executive officer (CEO) Shaji Varghese.
In an interaction with Moneycontrol, Varghese said that, currently, the company’s gold-loan book comprises 99 percent of the total book. “Currently, around 99 percent of our book is in gold loan. We are also building other businesses. We have a plan to cut at least 20 percent gold business in two years, and maybe around 30-40 percent in a few more years ahead,” Varghese said.
This forms part of a strategy to diversify business to other segments. “Our focus would be on gold and we have some business in mortgage, loan against property, small medium enterprises and will soon start channel financing,” Varghese said.
The non-listed, gold-loan focused non-banking financial company (NBFC) reported a net profit of Rs 239 crore in Q4FY24, jumping from Rs 141 crore a year ago. The total loan book of the lender crossed Rs 50,000 crore for the first time in FY24, Varghese said. The company’s disbursements rose by 15 percent year on year (YoY) to Rs 50,167 crore from Rs 43,443 crore in the previous year.
Gold loan competition from banks
In the past few years, many banks have aggressively grown their gold-loan portfolio.
The latest numbers of some of the gold-loan-heavy banks showed that they have reported robust growth in their portfolios. CSB Bank, which has a large chunk of its total book in gold loans, reported 22 percent growth on a YoY basis.
The lender’s book grew to Rs 11,818 crore from Rs 9,694 crore last year. South Indian Bank, too, is a major player, with its gold loan segment growing 12 percent YoY to Rs 15,513 crore. Federal Bank reported 27 percent growth, with its total gold loan book growing to Rs 25,226 crore from Rs 19,841 crore last year.
The aggressive growth by banks has led to tight competition for traditional gold loan lenders. CRISIL, in a report on January 4, said that the market share of gold-loan NBFCs has been over 60 percent between March 2021 and September 2023, despite strong competition from banks.
Malvika Bhotika, Director, CRISIL Ratings, said, “Gold-loan NBFCs have bolstered clientele and managed growth by opening branches in new geographies, offering online gold loans and door-step services, and deploying marketing strategies to target inactive customers.”
On RBI’s action on gold-loan lenders
In the past few months, the Reserve Bank of India (RBI) has pushed regulatory actions on some of the gold-loan lenders. On March 4, 2024, RBI debarred IIFL Finance from sanctioning and disbursing fresh gold loans following "material supervisory concerns and to protect the interests of customers with immediate effect".
On May 8, RBI sent an advisory to select NBFCs asking them to strictly adhere to Income-Tax rules on cash disbursal, weeks after the regulator imposed restrictions on IIFL Finance’s gold loans business for violating this norm.
It said that NBFCs are not allowed to disburse loan amounts exceeding Rs 20,000 in cash. A day after this, shares of some of the traditional gold loan lenders like Muthoot Finance, and Manappuram Finance fell by nearly 8 percent.
Here, Varghese said that the regulatory direction is for the empowerment of the sector and Muthoot Fincorp does not see any impact. “We have a rich legacy of 130 years in the business and we see no issues around the regulations,” Varghese said.
Fundraise plans in FY25
The company, Varghese said, continues to look across banks and non-convertible debentures (NCDs) for funding options. “Around 71 percent of liabilities today are from banks and the rest are from others, including NCDs. We also have other sources of liabilities .Co-lending is an option and opportunity for us,” Varghese said.
On equity funding, Varghese said that the company has no plans to go public in the next 18-24 months. “IPO is definitely in the visibility, but no specific plan or a project team or a date has been fixed. So, at this point in time, we don't see it happening for another 18-24 months,” Varghese said.
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