Gold loans growing sharply as lenders shy away from unsecured loans, Muthoot Finance MD says
Thu Feb 20 2025
The sharp growth in lenders’ gold loan portfolio does not reflect stress on borrowers’ part, but lenders are shying away from growing their risky unsecured loan segments, leading to more appetite for gold loans, Muthoot Finance MD George Alexander Muthoot tells businessline in an interaction. He speaks on the gold financier’s AUM growth, borrowing cost and listing of Belstar MFI. Edited excerpts:
What is driving higher growth in lenders’ gold loan portfolio?
Over the last three quarters, the Reserve Bank of India (RBI) and the finance ministry have been directing the lenders to go slow on unsecured credit, as it is a risky segment. They stopped fintech companies from giving such loans. Then they started cautioning all banks and non-banking finance companies (NBFCs) to be very careful of offering unsecured loans. So all lenders started lending less in unsecured segment. That is creating a cash crunch for the customers, and it does not show borrower stress. For an economy to grow, there should be purchasing power, even in the hands of the lower strata of citizens. If there is no consumption, how will the economy grow. So liquidity crunch among the people is driving higher gold loan growth for lenders, not because borrowers are stressed.
Q
What is your guidance on AUM growth?
In the 9MFY25 period, we have grown our assets under management (AUM) by around 30 per cent. We had given a guidance of 15 per cent growth towards the start of this fiscal, and revised it to 20 per cent after six months. We are seeing similar growth pattern this quarter as well. For next year, our traditional guidance of 15 per cent growth continues. However, we typically try to do better.
Q
Impairment on financial asset rose slightly. What led to the rise?
We have to keep 1 per cent higher provision on incremental AUM growth. These are provisions for standard assets. Actually, we have around ₹1,500 crore of provisions in our book, but we don’t need to keep these as no non-performing asset (NPA) for us will lead to a loan loss. Further, we also have to keep some provisions for NPAs. But NPAs are a non-issue in gold loans, due to the value of collateral.
Q
After repo rate cut, do you expect borrowing cost to moderate?
A good part of our borrowing comes from banks, while some come from non-convertible debentures (NCDs), external commercial borrowings (ECBs), etc. So we do not see any immediate impact, and I am also not sure if banks will pass on the rate cut to NBFCs immediately. Probably they will stop hiking the interest rate, but to reduce they will likely wait for a quarter or so. Interest rate for NBFCs is not on banks’ priority.
Q
And will you pass on the rate cut to your customers?
Our policy is if there is a small change in our borrowing cost, we absorb it. But if globally interest rates are rising and we are not able to absorb higher rate, we pass it on to customers. We try to maintain our net interest margin at around 10 per cent.
Q
Are you planning to raise ECBs?
We have already raised around $400 million. We have permission to raise $1.25 billion via ECBs from the RBI. Probably, when the time is right and growth is happening, we will raise that. The US interest rates also have to come down for us to look at this option. Otherwise, we will borrow domestically.
Q
Are you planning to monetise your stake in subsidiary Belstar Microfinance?
In this company, there is no major moderation in disbursements. AUM has started coming down slightly, and focus is on collections. It may take another two quarters more for stress to go away, it is not the first time this sector is seeing stress. We wanted to list this MFI when it was growing, but now that growth has slowed, there is no immediate need for funding. When things get better, we will go for an IPO.
Q
How many new branches will you open in 2025?
Usually, we open about 200-300 branches, and we have to take permission from the RBI for the same. It also takes time for each branch to open. We are present across country. Further, we hire around 1,000-2,000 people for gold loan business. But now we have started other businesses including personal loans, home loans, where more staff will be required for sales, collection and marketing purposes.
Source: https://www.thehindubusinessline.com/