We disbursed Rs 1 lakh crore gold loan last year: George Alexander Muthoot | SehndeWeb

There are around 28,000 tonnes of gold in the market and organized gold lenders like NBFCs and banks only have less than 2,000 tonnes of gold. The rest are still idle with people, which is a potential opportunity for gold lending. George Alexander Muthoot, MD, Muthoot Finance interviews business today on the performance of the company and the opportunity of gold loans in the Indian market.

BT: How has COVID-19 and geopolitical tensions impacted your gold lending business? How has the last fiscal year been for gold loan growth?

George Alexander Muthoot: While over the past two quarters, we have not grown much, we had still targeted a 15% growth in assets under management. Probably the past year, we may not have achieved the 15% growth targets, but we were able to achieve a little less than that.

The last two quarters I called mainly because 12 months before that, i.e. shortly after the COVID issue, there was a lot of demand for gold loans because people didn’t have silver and gold prices were also high. So a lot of people came for gold loans, and we actually dispersed a lot of gold loans. It was actually very helpful for people 12-15 months ago and we dispersed about a million dollars last year.

However, some of these loans people were unable to repay because they did not receive the expected collections. To date, many industries, SMEs, VSEs are still unable to repay the loan. So we had to auction gold loans in the last two quarters. Due to these auctions, the AUM fell slightly. We were still able to recover it, so there was no negative figure and the growth was stable. So instead of 15%, we may have gotten to just under 15% growth over the last year. Going forward, we should see better growth or maybe the estimated 15% we should be able to do for next year.

BT: What are your growth plans for next year?

MAG: We have been able to achieve a 15% guidance over the past 5-6 years. And we’ve always been able to hit 15%, 16% or even 20% sometimes. But last year was a bit of a rough year because of COVID and people couldn’t pay back. Growth was therefore just under 15%.

BT: Did you see higher gold bids in FY22?

MAG: Just like if you don’t repay a home loan, it’s auctioned off, the same goes for gold loans and nothing new about that. People who have done their best to get it back because I think the cash flow is not coming in so they have to give up gold. The option for us is to auction it off. So probably around 3-4% of the total loans had to be auctioned because of that, otherwise it was much less around just 1% or sometimes even less than that.

Only when people are unable to repay the loan and they have tried their best to repay but are unable to do so, only then is it auctioned off. It is sometimes unfortunately that the cash flow did not take place. Then they have no choice but to give up the gold and that’s what auctions are all about. But otherwise, initially, we were able to recover all of our loan money.

BT: The loan to value (LTV) ratio has been increased to 90% for banks by RBI. Has the lower rate of NBFC affected the business over the past year?

MAG: No. RBI had raised the LTV cap by 75% for NBFCs and given around 80-90% LTV for banks. While some banks would have given at a very high rate but if you give a loan at a very high rate and a client drops out just in case you can end up with a big loss because gold prices are not stable. But I think it was only to boost the banks that the RBI wanted to bring in. But as I said earlier, this does not take any business away from us or NBFC as the market has grown.

BT: What segments do you see growing in the coming year?

MAG: Most people come for business. Very few people also come during their personal crisis. Sometimes people come for tuition payment or during the school admission period when they need some extra money to pay the fees. But these are very limited cases and generally its small contractors who are our main customers. Geographically, we are present in all states except Kashmir, where we were present before, but no longer.

BT: The economy is showing signs of recovery now. Does the gold lending market reflect the same sentiment?

MAG: Gold lending is a double-edged sword; it cuts both ways. When the economy is good, people need more and more money. When the economy is growing, they need more finance for their business and if bank loans and such loans are not readily available, they will come and take a gold loan.

When the economy is doing well, there are good deals for all types of loans. Gold loan also there is a great demand. The second aspect is that people are stuck in tough conditions like banks not giving money or people not having enough cash with them, and then also gold lending is definitely an option. So, in times of ups and downs in economic activities, gold lending is the best option.

Also read: Muthoot Finance declares interim dividend of Rs 20 per share

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