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Muthoot Finance should have 15-20% growth this year also: George Alexander Muthoot

More and more people are seeing gold finance as a convenient way of raising money in the short term

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Last Updated: Dec 10, 2019, 03.45 PM IST|Original: Dec 10, 2019, 03.45 PM IST
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Even today, 90% of our portfolio is only gold loans. That is our core competence and that is giving us good business today, says George Alexander Muthoot, MD, Muthoot Finance. Excerpts from an interview with ETNOW.

Since listing, you have been one of the top five best performing stocks. What according to you were some of the major contributors to this outperformance?
Muthoot Finance has focussed mainly on its core strength which is gold financing. Right from there, we have always been focussing on gold loan business. Even today, 90% of our portfolio is only gold loans. That is our core competence and that is giving us good business today.

Some would argue that gold prices are not moving the way they moved in the last decade and gold has not given great returns for this decade. Silver also has given negative returns. Your business is highly dependent on the movement in gold prices. What happens if gold prices do not go anywhere for next three-four years?
I should correct you there that our business is not dependent on gold price because the average tenure of our loans is four months only. So, what we give is today’s price.In four months, there has never been any sharp fall or fluctuations in the price of gold. So, only if a 50% price fall happens in two -three months, then that would be a problem. Otherwise, a slow movement up or down would not affect us at all.

If gold prices go higher, obviously the ability to lend increases. My whole view is if gold prices remain flat, then does the size of opportunity get reduced?
You should also understand that not the same number of people are coming again and again. The market is huge. There is 30,000 tonnes of gold lying as ornaments with the public and today the organised gold lending market is just 100 or 200 tonnes, that is all. The rest is still out there. More and more people are thinking of gold loan as a very quick and easy way of getting money.

As we progress, more and more people are using this opportunity to monetise the idle asset and that is why we will do such a lot of advertisements so that newer people come. It is not that one person who had Rs 30,000 worth of gold now has Rs 40,000 as price has gone up. Every time 20-25% new customers are coming to us.

You have recently purchased IDBI’s AMC business for over Rs 200 crore. What is the rationale of the buy and your outlook on this segment?
Muthoot has been in financing business since 1939. We had been getting money from the public as gold bonds or NCDs, private NCDs, public listed NCDs. Today, one of our NCDs schemes are running. Just as we have gold loan business, we also have good franchise or good customers who invest in our company because they can relate to the company and are very confident about depositing their money with Muthoot.

A lot of customers have deposited their money with Muthoot. So, we thought it is a natural thing to look at mutual funds because today we do a little broking for some other mutual funds. We have tested that market and have seen that people continue to believe in Muthoot and if we also start a mutual fund, we will retain these customers. Today their option is only NCDs of Muthoot Finance. So, we have a branch network and we have a lot of customers and we can offer this to the customers so that we can retain them with us. That is why we thought of mutual funds.

Just to understand your business model, gold is in abundance. India is a country where the demand for credit will always be abundant. So can I say that 15% to 20% growth is there as long as you want to grow at that rate?
Yes. I think we have guided for 15% growth, we should probably do more than 15% -- around 15-20% this year also. Going forward, we see this because more and more people are seeing this as a convenient way of raising money in the short term. It is bridge finance for people who are not getting finance for small businesses, from the banks.

Once they get the finance from the banks, they replace it with bank loan. Till then, this is a bridge finance and this has helped us. We have always stood by it, saying that this is a bridge finance which will help the customers to tide over their immediate funding requirements.

Fintechs are saying that they can also give bridge finance at different rates. They are following a model where platforms are now able to make borrowers and lenders meet. The collateral here in this case is very different. Is that a threat to gold financing?
Gold financing has always been there. There have always been people who lent money with security, without security. Today without security, people are looking at fintech finance and micro finance. They have been there for the last 15-20 years, but it has not affected the gold loan market or gold financing market at all.

People have many options. They can go to micro finance, fintech. They can take a personal loan. They can take an SME loan. They can go to banks. Gold finance is another option, that is all.

Banks are also giving out these loans and their cost of borrowing is very competitive. How are you offering something that is more attractive?
I told you people take a loan and they return it in seven days, five days, one month, two months, etc., and we charge interest only on the actual number of days. There is no service charge. There are no pre-payment charges. It is very convenient and we are able to give a loan. For the first time maybe it takes 15 minutes; for the second time, the customer can walk out with the money in 10 minutes. It is a convenience and the average ticket size for us is only Rs 40,000.

We start with Rs 5.000, Rs 3,000, Rs 7,000, Rs 50,000. For those customers, the difference of interest differential between us and the bank is just Rs 50 or Rs 100 a month. For us, the customer service is very important and that is why 75% of our customers come back to us later and maybe, they take a loan, they repay it in one month or two months. After six months, they come back again for a loan. So this is a convenience and it is not that interest sensitive.

What are the chances that you may end up diversifying outside your core? Mutual fund is not your core. We have a lot of AMCs struggling for years to reach a scale and size. What are the chances that you have spread yourself too thin in the next five years?
There are two things. One is our lending portfolio. In the lending portfolio, our core strength is gold loan and we stick to that. Second, we are just looking at the liability side and we are giving a service to our customers only. It is not that we are going to take any risk in mutual funds, etc. It is just a service which we can give to our own customers. We do not want to have brokers and the agents doing this for us. We will sell it through our 5,000 branches to the customers who come to us.

It is not that big a portfolio. It is not going to give us big returns like gold loans, but it is a service or a way to retain our loyal customers. They can deposit in mutual funds, they may deposit in a bank or they will deposit in NCDs. We had to be there to get their NCD business also because we do insurance broking also. This is just another business to help our customers use their excess money.

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