Expect 20% growth in gold loan portfolio: George Alexander Muthoot, Muthoot Finance
We have seen a nice and steady pickup after almost six quarters. What led to this pickup and is this growth sustainable?
In the last two quarters, economic activity has picked up, credit demand has also picked up and that is reflected in the disbursals we are seeing in the gold loan sector. Not only in the last quarter, in the last two months of this quarter also we see a steady pickup in the overall business and I am sure that we will be able to keep up this momentum. We should be able to continue this year with the same momentum of gold loan growth.
Home finance and microfinance now form a good 10% of your assets under management. What kind of AUM mix are you seeing for gold finance, home finance as well as microfinance in the near future?
As far as the gold finance sector is concerned, by the fourth quarter -- full year -- we should see almost 20% growth in the gold loan portfolio. The gold loan portfolio was about Rs 29,000 crore at the start of the year. We see the credit pickup happening in the gold loan sector, the branches are getting more footfalls.
One of the reasons for this is the good marketing we have been doing. We have sponsored the IPL with Chennai Super Kings and of course, they have come out well. The brand ambassador Mr Amitabh Bachchan has also done well for the rejuvenation of the branches, creating more excitement at the branch levels -- that is employees as well as the others.
As far as microfinance and home loan segments are concerned, we see a better pickup in the affordable home loan sector, which is Muthoot Home Finance, a 100% subsidiary. We should end the year with overall Rs 1500 crore of AUM for home finance.
Microfinance is another subsidiary, though not a 100% one, We have about Rs 1100 crore of AUM as of date and that should increase to about Rs 1900 crore by the end of the year. That said, we have also started a new vertical in Telangana and Andhra Pradesh. It is the vehicle finance company which we started in the name of Muthoot Money and by the end of this quarter, we should see that also becoming a 100% subsidiary of Muthoot Finance. It has around Rs 50 crore of AUM as of date and may go up to Rs 250-300 crore by the end of the year.
The other subsidiary, which is Sri Lankan, is not growing at the same pace as home finance and the microfinance in India. But it is also doing well and they have got permissions to open 10 more gold loan branches. In this Sri Lankan company, we had associated for gold loan business and they were having concerns with the central bank there for getting new bank licence. Now that they have got 10 branch licences, we should see that also going up in the next three, four quarters.
The other concerning point however is the higher interest rates. Banks have started hiking MCLRs. In light of that, how do you see your cost of funds and yield move and the impact on your margins?
See we had very fine rates from the banks till now and we continue to get that. Now that banks have increased their MCLR by 30-40 bps, then certainly there will be impact but even now, among the NBFCs we get the best rates from all the banks we are getting funding from. Moreover, six months back, we had a NCD issue of Rs 3000 crore of publicly listed NCDs that also came at a much lower rate at that time. All that is helping us to maintain the cost of funds which is around 9% now and we should be able to maintain that to a maximum of about 20 bps higher the full year. That is not a big concern for us as even otherwise we have increased our lending rate by 0.5 and 1% across different products in the gold loan sector.
So 0.5% to 1% increase is already there, that will also start kicking in probably by the next one quarter or two quarters.
What was the impact of the floods in Kerala in terms of collections, growth and even demand on gold finance?
Now that it is almost a month behind us, the impact is over. Things have started getting back to normal. The impact on the general public was mainly because the floods had destroyed or damaged their homes. Not many lives were lost but the homes were destroyed and that is being reconstructed now. As far as our business is concerned, although we are a Kerala- based company, our gold loan business in Kerala is just 5.8% of our total AUM and out of the 600 branches, only four branches have been really affected by the floods. Branch-wise there is absolutely no loss, the gold etc which we have in the strong rooms is still safe, just in the four branches the gold packets would have got wet but not damaged or lost. So that loss is not there.
Talking about the pickup in demand since reconstruction is going to happen in Kerala, especially as the damaged houses have to be rebuilt and repaired, we should see some credit offtake happening there as well. As of now, the government is releasing quite a lot of money and that is also coming back to the people. Since gold loans does not involve EMIs, equated monthly instalments, we do not see any problem of these becoming NPAs. We can always give more time to the people to pay back because they do not have that EMI headache.
As for the microfinance sector is concerned, it is very small -- just about Rs 30 crore. They have just started in Kerala and we are quite confident that if you give them a little bit of time, that Rs 30 crore also will come. So nothing serious as far as the floods are concerned are impacting our balance sheet. Some business may pick up which I am not sure will happen in next two quarters in Kerala. But having said that, Kerala business is just 5% of our total AUM.