Falling gold prices and bond yields are posing new challenges for gold financiers. Speaking to BTVi , Manappuram Finance CEO and Managing Director VP Nandakumar says the company’s cost of borrowing will fall below 10 per cent in another quarter and help in improving the net interest margin by 20 bps. Manappuram is trying to de-link the gold finance business from the price vulnerability, to whatever extent possible, he said. Excerpts:

The 10-year corporate-bond yields have fallen sharply. How much has your cost of borrowing come down in Q1?

During the last one year, it has come down by almost 100 basis points. It is slightly over 10-10.1 per cent. In another quarter, it will definitely come down below 10 per cent.

With the fall in cost of funds, what has been the impact on net interest margin (NIM)? Has the interest spreads increased?

In the last two quarters, the change will be 20 bps. That benefit will show up in the NIM.

Can you explain how the fall in yields gets translated in higher NIMs since financing is a competitive business?

In the gold loan business, the lending rate remains more or less at 20-23 per cent. We also get that benefit in other businesses such as micro-finance. Recently, CRISIL and ICRA upgraded of our group companies. The micro-finance company also got a higher rating of A+ from CRISIL, for medium to long term. That is the case with home finance company, too. In micro-finance, as there is a NIM gap, the changes in interest rates will not affect the bottom-line. Also, the interest rate is not a critical factor in micro-finance.

But in home finance and passenger-vehicle finance, we are reducing the interest rate commensurate with the rate trajectory, and passing on the benefits. As these two are a small part of our portfolio, the impact of rate reduction has been neutral.

You have also been focussing on de-risking the gold loan business from gold price fluctuations. What’s the update on that? Will any move towards tighter lending norms have an impact on Manappuram?

We are trying to de-link our gold finance business from the price vulnerability, to whatever extent possible. Our average loan-to-value (LTV) is at 69 per cent; we want to maintain that level or below that. Another factor to contain this price vulnerability is regular interest collection.

The accrued interest a year ago was nearly 3 per cent, but two years ago, it was 8 per cent. Now the accrued interest has been brought down to 3 per cent. Our yield is about 24 per cent. So we have achieved good interest collection. Another thing is, we have introduced a short-term three-month product, in which the customer has to replace the ornaments every three months by paying interest up to date. This way, we address the price volatility.

Turning to your diversification strategy, can you give us an update on the growth across all segments?

Some of the businesses are on a string-growth path. Micro-finance is growing as per plans — the asset under management (AUM) is now at ₹1,500 crore. The passenger-vehicle business and housing finance may report an AUM of ₹2,200 crore. We have some ₹100 crore in other portfolio — ₹50 crore each for corporate and SME lending. All these segments are growing as budgeted.

You have also launched an online gold card product and a credit card product. What has been the response?

That portfolio is now at ₹700 crore, which is not that big; but having started six months ago, I feel there is a good traction in that. The technology is still being refined to ensure that we operate through a branch-less model. We don’t intend to close down the existing branches. We have 3,200 branches. But we will be able to do three times the business than the branch network because one can get loans 24x7 without coming to the branches.

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