Demand is good and competition is also intense, but we are confident of achieving the guidance.

NBFC Muthoot Finance reported an 8 % year-on-year(y-o-y) increase in its second-quarter consolidated net profit to Rs 1002.9 crore despite de-growth in its non-gold business. Net profit of the gold loan division increased 11 % YoY to Rs 994 crore, and the share in the consolidated profit stands at 99%. Managing director George Alexander Muthoot talks to FE’s Rajesh Ravi about the gold loan business and other plans.

Muthoot is reporting a slowdown when compared sequentially. What is your outlook for the fiscal?

First quarter was almost flat due to the lockdown. We could grow only in the second quarter and we are giving guidance of 15% for the fiscal year and we feel that we can achieve it. Demand is good and competition is also intense, but we are confident of achieving the guidance.

What about defaults in the gold loan book? Most banks are reporting higher NPAs?

Gold loan is a product where default is low. In case of default, we can auction and rewrite the money. In the case of other products, it will take another two quarters for normalcy. Now, only big businesses like e-commerce are doing well. For MSMEs and small shopkeepers, it will take one or two quarters more to get back to normal business.

You have mentioned a highly churning customer base in your presentation. Please elaborate on it?

Loans are given for one year but most customers close the loans in four-five months. A high proportion of gold loans is repaid within the first six months. The total portfolio churns at least two-three times in a year.

How much is the new customer acquisition?

We acquire almost 3 lakh new customers every quarter. And we have repeat customers who come back after one-two years and some customers have more than one loan. Our total customer base is 2 crore and our active customer base is around 50 lakh.

The competition from banks and other NBFCs is seen as strong. Do you see your interest rates going down?

We have to offer lower rates to get some customers interested, but we try to retain our profitability. The competition is tough and demand is good.

What about your cost of funds? And spread?

Our incremental cost of funds is 7-7.5% but we have legacy loans that have higher interest rates. Almost 25% of the fund is our own in which the cost is almost nil. Interest spread is 10-11 % for the other funds.

Average LTV for the gold portfolio?

We don’t give loans above 75% LTV and the LTV of a specific loan depends on the gold price of that day. Our average LTV is around 70-71% for the total portfolio.

Your non-gold business is showing de-growth in book and profitability. What is your outlook on the non-gold subsidiaries?

Microfinance will do well in the future once customers start paying back. The government is encouraging the sector and banks are also refinancing. Muthoot has small portfolios in housing and vehicle finance. We are very careful in our housing loan portfolio and have downsized the book size. The affordable housing loan portfolio was actually in problem even before the pandemic. There is quality and delivery issues in the affordable housing sector. The sector will come back as the migrants return to work.

Are you planning a listing of your subsidiaries?

The total portfolio of our subsidiaries is very small. It has to become substantial for us to think about any sort of disinvestment. Home finance is only 3% and vehicle finance is only 1% of our book.