Gold loan business will see a 4-5% growth in AUM for this year: George Alexander Muthoot, Muthoot Fin

“Earlier, many of the gold loans were accounted as agricultural loans, etc. Now, they are classifying it all as gold loans, because some banks started saying that we have 40,000-50,000 crores of gold loans. So every bank wanted to outdo each other,” says George Alexander Muthoot, MD, Muthoot Finance.

Channel checks suggest that there is a decline in the gold loan book of NBFC that seems to have been arrested. Is that what you are experiencing?
It is correct that yes, we are seeing better traction in the gold loan space. The last one year, the first two quarters were flat and there was absolutely no growth. Third quarter, we started seeing growth coming back. Probably by November, December, January, February now we are seeing good growth happening in the gold loan business. So gold loan business has been doing well now and I think by the end of the year, we will see a 4-5% growth in the AUM for this year. So that is the business we see this year. Now to answer the question about whether it was a gold price, yes, gold price has also helped. But then what I see differently is that, yes, the focused players, the customers are coming back, economic activity is picking up so the companies focused on gold loan, they are seeing good business. And that has to come back. The earlier three quarters, it should have only been a blip in the business at that time, but then growth is coming back.

After Covid, we did see several banks enter the gold loan space in a big way. With the gold loan book CAGR being much higher as compared to you, what is the expectation in terms of competition?
Yes, I think it is not competition, it is new business which is also going to banks, because banks are also advertising a lot about gold loans, etc so new customers are going to banks. It is not that we have been losing customers, we have not lost any business. So banks are getting business and we are also getting business. But there is one more angle to this, which is the big growth which you saw in the public sector banks and other banks in gold loan during the Covid or soon after Covid, is because they have now changed their accounting.

Earlier, many of the gold loans were accounted as agricultural loans, etc. Now, they are classifying it all as gold loans, because some banks started saying that we have 40,000-50,000 crores of gold loans. So every bank wanted to outdo each other. So they are now showing the agricultural loans also as gold loans, and that is why a big number has come. Of course, they have grown business, but not to the extent or to the 3x or 2x which they have been showing. But having said that, now the growth in gold loan business for them is also plateau-ing and probably the focussed players like NBFCs will stand a better chance to get more business going forward.

What we want to understand in terms of the Muthoot yields is that it first fell in Q4 FY22, as they resorted to the teaser rates. With the teaser rates now behind us, what would be the yield level you would be operating at then?
Yeah, of course, 22% yields would have been too good to happen at some stage of the business but we should see when we talk about yields, we would rather talk about the spread, because the cost of funds is also going up. So we have been maintaining 11% to 12%. We are having an 11% to 12% spread but I think going forward, we should expect a 10% to 11% spread on the gold loan portfolio. I think we will be able to maintain that spread of 10% to 11% on the spread going forward.

Also talking about your subsidiaries, they have surely performed well but would you be focusing on the non-gold loan portfolio going forward? And will the AUM mix reflect higher share of the non-gold business going higher then?
Yes, the non-gold loan business like the home finance, the microfinance, the personal loan, the vehicle loan were going slow during the Covid time. But now we have appointed a new CEO for the home finance. He has joined last month. And we are now refocusing on the home finance also, where it had shown de-growth in the last two years. Now it is starting to grow. So that is one area we will be growing. And the second is the personal loan sector, which we are starting to grow. The personal loan also is generally given to the salaried customers who are customers of the gold loan business. So it is mainly a cross-sell business, mainly a cross-sell to our gold loan customers and also to third parties. So the salaried personal loan is also starting to do well. We have started a new vertical, which is the small business loans that is again unsecured small business loans.

So our non-gold loan business focus is also there. As far as the microfinance is concerned, it had some issues during the Covid, all those write-offs, etc., which had to be done during the Covid, is already behind us. That is again growing.

So today our non-gold loan business constitutes about 10% to 11%, going forward in the next three, four years, it should reach anything between 15% to 20% in the next five years.

But then that does not mean that we are refocusing. Our first priority will be our core business of where we are very good which is the gold loan business. All the others are subsidiaries or second priority for us.

Muthoot has opened 120 branches and has said the remaining 30 will open by March. You have mentioned that you will further apply for approval of branches. How is your geographical mix and from here on, where do you expect in terms of growth?
We have already opened 120 plus new branches. So by the end of this month or this year or the end of this month, we should be completing 150 and probably after that we will go for the next batch of 150 or so branches. That is the next growth in gold loan branches.

So the gold loan branches takes about a year or two years to mature. So it has started giving us gold loan business from these branches also. So going forward, the new branches will also help us. Today we have about 4600 branches so 150 branches will certainly add more business from there also. So branch expansion is not the only method for growing, but definitely it helps.