Muthoot Finance has witnessed its best loan growth in the last four to five years and holds the highest gold reserves as well as of March. Are these growth levels sustainable?
Yes, we have been growing smartly. Last year, we were able to grow about 22 per cent. So, this year also, even with the higher base, we expect to grow at least 15 per cent on the AUM of gold loans because we see good demand coming from the city as well as the rural market. People want to restart their business and they want very quick and easy finance. As usual, gold loan is the solution for that.
Gold loan is not a one year-two year loan. This is a three-month or a five-month loan. The average tenure is only 45 or so. People who need money as a bridge finance till they get their payments from somewhere or till they are able to get a long term loan from some banks etc. use the gold loan route. This has been our forte all these decades and people consider Muthoot as one of the more reasonable NBFCs in the gold loan business. That is why you see more people coming to Muthoot compared to any other institution giving gold loans.
Are you seeing increased enquiries, an uptick in disbursements? What are the trends and how prepared are you to meet the demand for gold loans going forward?
All the branches were closed from the last week of March and we are in lockdown in April. But from May 1st onwards, things started opening up but the branches started opening in phases in cities and states. In the last four weeks, all our branches have opened. All our staff are present and things are back to normal.
Initially in the first month of opening, in the end April and May, we saw more people coming to close their gold loans and take back their ornaments. From last week of May or first week of June onwards, more people have started coming for loans. That is the uptick we have seen. I am sure going forward in the next quarters, we should see much more growth coming in gold loans.
As for interest collection, we had very little collection in April other than people who are able to use the online platform for payment of interest or part payment of their loans. The all other pent up interest demand or interest were to be collected. We are seeing good collection in May and June and by July end, we should see that interest collections are back to normal.
So even in June although people have not paid their loans, we can always call in the money because of the gold prices. So, the interest plus principal is much lesser than the resale value of gold. We do not see any risk in people delaying their payments. I think we are back to normal and we see good uptick in both the rural as well as the city markets which are starting to grow. Small traders are starting their business and I am sure we have been a help to them all through — both in pre-Covid days as well as during the Covid time.
What are you witnessing in terms of an incremental demand and how much of it is coming from the MSME segment in particular?
I do not know what is the exact definition of an MSME. For us, it is mainly traders and also small shops, small industries. But the majority of traders and MSMEs also include individuals who come to take a loan. A large number of small traders take loans from Muthoot finance for the gold loans. That is where we see MSME people coming because they all intend to get a long term loan from the banks etc. but till the bank loan materialises, they are coming to us for taking these loans as bridge finance.
The cost of funding has been particularly eased for gold financers such as you. How has the borrowing cost come down for you in particular? Is there a case of margin expansion going forward?
The ease of getting a loan now is much better. About six to eight months back, when we had the NBFC issues with IL&FS and the DHFL and Yes Bank, banks were reluctant to lend to NBFCs and we were also caught along with the other NBFCs.
We are a class apart vis-a-vis other NBFCs but we were also bundled with the rest. So, availability was also an issue six months back. Now things are better and availability of funding is not an issue at all. Now the rate of interest or borrowing cost has really not come down, probably just 10-15 bps. But going forward,I expect rates to come down.
Now the final point was whether our margins have expanded. We would like to retain our spread. If going forward, the rate of our borrowing cost comes down, we will certainly pass it on to the customer. I said earlier also that we are perceived by our borrowers or customers as the most reasonable of NBFC. So, if we are able to get funding at lower cost, we will certainly pass on that difference to the customers keeping our net interest margin intact.
Can you update us on the moratorium availed for the subsidiaries? Which segment do you think is likely to recover faster and how has been the collection efficiency in the first two and a half months of FY21?
As far as gold loan company is concerned, there is no question of any moratorium because the loan is for 12 months. If a customer wants a moratorium, he can easily get it because the average tenure is only five months. And even if we give a moratorium, people do not come to take back their loan deposits. Moratorium means we do not need to auction the gold. We do not need to auction the gold because we would like to refund the money to the customers because everything is more than what is due to us. So, we do not see any issue there.
Now coming to the subsidiaries, we are going a little slow on housing finance. Our disbursement charges have also been brought down for the current year. We do not want to go aggressively but certainly after three, four months, when things settle down, we will be gradually growing the home finance book along with vehicle finance.
In case of vehicle finance also, we will go slow in the next two three months but thereafter when the economy and things pick up, we will certainly be growing our vehicle finance book as well.
As far as microfinance is concerned, that is seeing good collections in the last month because they have given moratorium to almost all their customers but there are quite a few customers who are coming forward. That is what I understand from that management that they are coming forward to pay up and also take new loans. So, disbursal has also started in a small way in microfinance.
Of all these subsidiaries, microfinance should catch up very quickly but the other two — Muthoot Home Fin and the vehicle finance company Muthoot Money — we should see business picking up around September or so.
As far as the collections are concerned, in April, we were not able to collect much both in home finance as well as vehicle finance. But in May, things started opening up and things are getting better.
June is still better. It is not that all the customers who are eligible for the moratorium have actually used it. Not even 50 per cent of the people who are eligible for the moratorium both in home finance as well as vehicle finance have used this because it is a little burdensome for the customer if he takes the whole moratorium because after that he will find it very difficult to pay the instalments.
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