“We should see good quarterly growth in this quarter and also we should see good growth in gold loans in the coming one or two quarters. Not only gold loan, other loans are also being taken. This is because the economy has opened up,” says George Alexander MuthootMD, Muthoot Finance.
Gold was a safe haven. We looked at how gold prices behaved and price action during geopolitical tensions and even when the stock market was volatile last month. What has been the impact on your Gold Loan business? There has been a fair amount of volatility in gold prices in the last two months. But overall, over the past year or two, the trajectory has been steadily going up. It hasn’t fallen. One can say that the price is almost constant and it bodes well for any business and of course, gold loan business as well. There are occasional ups and downs but today the price is stable.
But have you seen higher disbursements? Have you added more consumers to the user base? Yes. Over the past three months, we have been adding more and more new customers. Economic activities have started everywhere – in cities as well as in rural areas. So we see that disbursements are increasing everywhere. We should see good quarterly growth in this quarter and also we should see good growth in gold loans in the coming one or two quarters. Not only gold loan, other loans are also being taken. This is because the economy has opened up, the fear of Covid-19 is behind us and we should see a takeoff from here.
When we talk about Gold Loan volatility, price volatility, the kind of changes the company has done over the years – be it LTV, systems, processes, risk management – what has evolved, what You think it’s volatility. Is gold now part of the commodity market and the company has adjusted to these changes, at least for most of the loans? Yes, I would like to correct you that we should not call gold loan as commodity loan as we give only on home jewelery and it is definitely not commodity based lending. But so be it, in the last three-four years, after demonetisation, there may be a lot of transfers to online payment systems from customers coming to the branch and paying in cash etc. It was actually given a little more impetus during the pandemic when branches could not be opened.
So, in the last three-four years, we have evolved in the sense that customers can transact their business or maybe make their payments etc., if one looks at the last three-four years and sees every day Sees numbers better. The number of customers doing business or transactions online is definitely increasing and this is a good sign.
But, having said that, customers need to come to the branch to bring their gold jewelery for safe custody and to take it back in physical form. We certainly haven’t been able to do it online. We sometimes help customers by going home and collecting gold but these are very rare cases and only for big customers. So processes have evolved, businesses are evolving and we are always trying to see every day how we can get more and more customers using gold as a means of finance. This number is also increasing day by day.
One of the top investors told me that the strength of Muthoot Finance is the number of loans they disburse in a day. How many loans do you disburse in a day compared to some of your other peers? About 1,50,000 customers visit our branch every day. Half of them come to take a gold loan, the other half probably to take back their gold loan and some of them come to pay their interest etc. There are footfalls in the branch. As I said earlier, a customer also prefers to visit the branch, has the touch and feel of the branch to take the gold loan so he comes there for the gold loan.
The highest disbursements were made in the third quarter of last year when we disbursed gold loans of around Rs 50,000 crore. On an average, we disbursed around Rs 30,000 crore every quarter. Therefore, the number of customers coming to take a gold loan should be between 50,000-60,000 per day.
What about non-gold loan business? Analysts expect a correction to around 14-15% in the next three years from the current 10%. are you on track? Yes, we are on track. All of our processes and all of our people are ready for this. It is only that the industry was not doing well and it means that the affordable home loan was not doing well. It is just getting started and so probably in the last four, five quarters, we have not seen any growth in the affordable home loan portfolio as well as the vehicle portfolio.
But now that the economy is opening up, people are getting more and more jobs and in such a situation, affordable home loans as well as vehicle loans should accelerate further. We have enough money, enough branches and enough people. We are just waiting for the economic activity to pick up so that we can accelerate the affordable home business as well as the vehicle loan business.
As far as microfinance is concerned, it has never been a big issue. They are on track, the microfinance business that our subsidiary, Belstar, is doing well. They have started more and more disbursements and the book is also growing suitably.
There has been a lot of disruption in the gold loan sector. For example a company like Bharat Pay has also entered the gold loan segment. What is your digital strategy, what are the growth levers for the company going forward? Are you worried about this disruption and what will be the main focus for you? I would not call this disruption. With more and more people entering the gold loan business, it is probably good for NBFCs, for banks and for those companies you said all are looking for gold loans. It’s not a disruption, it’s just that more and more people are joining in.
But I am sure that people who are really serious about this business, who want to pursue this business, not only for a quarter or three quarters but for years together is the proper place to play and give them the right business. will get . But for those who are coming for short duration game, I don’t think this is the right business for them.
What is the outlook for NBFCCs in terms of the funding environment ahead? How do you see the overall funding cost and the size of the NIM? Today the funding cost has come down by about 200 bps. Hence we are able to easily access funding whether it is NCDs, Non-convertible Debentures or Bank Loans. Now the funding cost is in the region of 6-7%, which is certainly about 200 bps lower than before. Funding availability is definitely there, not a problem because recently we have also been upgraded to AA minus and that is an achievement for us. We are well on our way to getting much better funding.
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