There are about 28,000 tonnes of gold in the market and the organised gold loan players like NBFCs and banks only have less than 2,000 tonnes of gold. The rest is still lying idle with people, which is a potential opportunity for gold loans. George Alexander Muthoot, MD, Muthoot Finance speaks with Business Today about the company’s performance and the opportunity for gold loans in the Indian market.
BT: What has been the impact of COVID-19 and geopolitical tensions on your gold loan business? How was the last financial year for gold loan growth?
George Alexander Muthoot: While in the last two quarters, we have not grown much but still we had targeted for a 15 per cent AUM growth. Probably the concluded year, we may not have achieved 15 per cent growth targets but have been able to achieve a little less than that.
Last two quarters I called out mainly because 12 months prior to that, i.e. soon after the COVID issue, there were a lot of demand for gold loans as people did not have money and the gold prices were also high. So a lot of people came for gold loans, and we actually dispersed quite a lot of gold loans. That was actually very helpful for the people 12-15 months back and we dispersed about one lakh crore in the last year.
However, some of those loans, people were unable to repay because they did not receive the anticipated collections. As of today, still many industries, SMEs, small businesses were unable to pay back the loan. So we had to auction gold loan in the last two quarters. Because of these auctions, the AUM came down a bit. We were still able to recover it and therefore there was no negative number and the growth was flat. So instead of 15 per cent, we may have come down to a little lesser than 15 per cent growth in the concluding year. Going forward, we should see better growth or maybe the estimated 15 per cent possibly, we should be able to do for the next year.
BT: What are your growth plans for the next year?
GAM: We have been able to achieve a 15 per cent guidance from last 5-6 years. And we've always been able to achieve either 15 per cent or 16 per cent or even 20 per cent sometimes. But last year was a little difficult year because of COVID and people weren’t being able to repay. Therefore, the growth was little less than 15 per cent.
BT: Have you seen higher gold auctions in FY22?
GAM: Just like if you don’t pay a housing loan then it is put out for auction, same is for gold loans and nothing new in that. People who have tried their best to take it back since I believe that cash flow is not coming in, then they have to abandon the gold. Option for us is to auction it. So, probably about 3-4 per cent of the total loans had to be auctioned because of this otherwise, it was much lesser around only 1 per cent or sometimes even less than that.
It is only when people are unable to repay the loan and they have tried all their best to repay but are not able to do, then only it is auctioned. It is sometimes unfortunately that the cash flow may not have happened. Then they do not have an option but to abandon the gold and that is what auctions are. But otherwise, initially, we were able to collect all our loan money.
BT: Loan to Value (LTV) ratio was raised to 90 per cent for banks by RBI. Has the lower rate for NBFC affected the business over the last one year?
GAM: No. RBI had raised 75 per cent LTV cap for NBFCs and gave around 80-90 per cent LTV for banks. While some of the banks would have given at a very high rate but then if you are giving a loan at a very high rate and if a customer abandons in case, then you can end up with a big loss since the prices of gold are not stable. But I think it was only to boost the banks that the RBI wanted to provide. But as I said earlier that it is not taking away any business from us or NBFCs as the market has grown.
BT: Which are the segments you are seeing growth in the coming year?
GAM: Majority, people come for their business purposes. A very few people come during their personal crisis as well. Sometimes, people come for the payment of school fees or during the time of school admissions, when they need some extra money for paying fees. But those are very limited cases and generally its small business people who are our mainstream customers. Geography wise, we are present in every state, except Kashmir, where we were earlier present but not anymore.
BT: Economy is showing signs of revival now. Is the gold loan market reflecting the same sentiment?
GAM: The gold loan is a two-edged sword; it cuts both ways. When the economy is doing well, people need more and more money. When the economy is growing, they need more funding for their business and if the bank loans and such loans are not easily forthcoming, they will come and take a gold loan.
When the economy is doing well, there is good business for all types of loans. Gold loan also there is a big demand. The second aspect is that, people are stuck in tight conditions like banks not giving money or people are not having enough cash flow with them, and then also gold loan is definitely an option. So, in times of both rise and drop of economic activities, gold loan is the best option.
Copyright©2022 Living Media India Limited. For reprint rights: Syndications Today