George Alexander Muthoot, Managing Director of Muthoot Finance, is not too worried about banks suddenly turning aggressive in the ‘loans against jewellery’ business, which is bread and butter for his company.

In an interaction with BusinessLine , Muthoot emphasised that banks will lose interest in this business as soon as they find some other lending opportunity. Excerpts from the interaction:

Banks are snapping at your heels as the Reserve Bank of India has allowed them to give 90 per cent of the value of gold as loan (loan to value/LTV) but gold loan companies continue at 75 per cent LTV. Do you see this as a disadvantage?

Banks are not snatching our business. They are actually getting newer and newer customers…It is the bigger ticket loans (customers wanting to take ₹5 lakh or ₹10 lakh loan) that are going to the bank. Actually, the pie (of gold loans) is increasing.

To my knowledge, no bank is giving gold loans with 90 per cent LTV. Not every customer wants the maximum amount (of loan). Today, for the same gold, you can get 30-40 per cent more loan.

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How do you compete with banks, which are offering gold loans at about 7.50 per cent?

It is not merely the interest rate that a customer sees. There are also other factors such as convenience and turnaround time…Occasionally, banks become very aggressive. After some time, when they get some other opportunity, they lose interest. This happened in 2008 and 2010 also. Not only banks but other NBFCs (non-banking finance companies) will also look into this (gold loan business) now. After some time, financial intermediaries, which are not focused, will lose interest.

But we also try to be alert about what the competition is doing.

Gold-loan NBFCs will see up to 18% growth in AUM in FY21

Will the second quarter AUM growth of 32 per cent year-on-year be sustainable?

In the first half of FY21, the first quarter (Q1: April-June) was a washout (the assets under management declined by ₹277.5 crore during the quarter). However, in the second quarter (Q2: July-September), the AUM rose by ₹5,739 crore to ₹46,234 crore as at September-end 2020.

For the whole year (FY21), our portfolio growth will definitely be higher than 15 per cent.

Is the demand for gold loans outstripping the capacity of your branches to handle business?

In fact, our branches can handle much more (business). There is no issue with transaction capacity at the branches. Operationally, our branches are capable of handling more business.”

Our branches, on an average, handle about ₹10 crore of gold loan business. When the average business goes up, the operating expenditure comes down.

In Kerala, the average business per branch is only ₹2 crore. So, they are not making as much profit as the other branches (in other States).

What is the status of your branch expansion?

In the first quarter, we were not able to add anything. We usually add 150 to 200 branches every year. We are slowly bringing down the number of branches in Kerala, our home State. We had around 850 branches in the State about six year ago. Now it is down to 550. We had branches in every nook and corner. The rationalisation is only due to business considerations…The State has traditionally not been a lending state. It is a deposit State.

We are expanding our network in all other States except Kerala.

What trend have you seen in gold loans since the pandemic broke out?

There are people who have taken short-term loans at very high interest; there are credit card roll-overs, and all those things. Sometimes we ask our potential customers as to why they want to pay such a high interest rate. ‘Anyway the gold ornament is lying idle in your locker. Give it to us. We will give the money. Go and pay off this high-cost debt.’

We have encouraged our customers to go online for transactions — 40 per cent of our customers do transactions (payment of interest, repayment of principal, top-up facility) online. They have to come to the branch to deposit gold and take it back. We are hand-holding customers for online transactions.

We have also started a ‘loan at home’ product. Our staff go to big customers (their house) and bring the gold to the branch. The moment the gold is given to us, we transfer the money. This facility is for customers borrowing more than ₹2 lakh. Smaller customers would be comfortable bringing their gold to the branch.

What is your take on co-lending (with banks)?

Co-lending generally happens when there is a dearth of funding. NBFCs that are not able to raise resources themselves enter into this arrangement with banks. We raised ₹2,000 crore via a non-convertible debenture (NCD) issue in the last week of October. We have got sufficient and more funding now. Demand (for loans) is there and funds are there.

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