Muthoot Group eyes higher growth in non-gold loans

KOCHI: Muthoot Finance too is on course to gradually increase its non-gold assets in its loan book despite the relatively high lucrativeness of gold loans.

George Alexander Muthoot, Managing Director of Muthoot Finance Group, said the company hopes to increase the non-gold assets from the present 12 per cent up to 20 per cent within three or four years.

Recently, the Manauppuram Finance MD & CEO, VP Nandakumar, said the company has already launched its diversification drive which will see the gold and non-gold assets being divided in the ratio of 50:50 within a few years from now.

Manappuram CEO had said his company had drawn the diversification plan about five years ago and currently the gold assets stand at about 58 per cent of the combined asset base of the group.

According to experts in the non-banking finance companies (NBFC) industry, the new entrants into the gold loan business as well as banks are currently giving the traditional players a run for their money with competition playing around the rates.

While the loan assets of the standalone Muthoot Finance account for only 88 per cent of the group’s assets, the contribution of profit from Muthoot Finance to the group’s aggregate profit is as high as 96 per cent, leaving just 4 per cent to the subsidiaries.

The list of subsidiaries includes Muthoot Homefin, Belstar Microfinance Ltd, Muthoot Money Ltd and Asia Asset Finance PLC.

Branch expansion

Muthoot Finance, the largest gold loan company in the country, has already opened about 120 shops so far during the current financial year and this number is expected to touch 150 towards March end.

Rate war

The rate war that raged during the last financial year among the gold loan players including banks had pushed the interest rates in the market down to 6-7 per cent range.

But towards the end of FY22, all players decided to call off such rates on the ground that they were unsustainable as those loans were struck at rates below their cost of funds.

But what is still intriguing is that Muthoot Finance chose to convert all those low-rate loans (tease rates) into ordinary loans (with higher rates) much before their maturity, last year.

Muthoot officials had argued that the company enjoyed the right to call off such rates even mid-way the tenure of such loan, even against the wish of the customers who had borrowed at teaser rates.

NIM may drop further

The net interest margin (NIM) for the gold loan companies may fall further as the borrowing costs have increased over the past few months, and are expected to grow further in the coming months.

The borrowing cost for the company in the third quarter (Q3) was around 8.13 per cent.

“I think it is likely to move up in the fourth quarter, because in the third quarter, the incremental costs have been going up and hence, it should move more towards 8.5 per cent in the coming quarters,” said Oommen K Mammen, the chief financial officer (CFO) of Muthoot Finance.