Received approval to raise $1 billion via ECBs, says Muthoot Finance MD
Gold loan major Muthoot Finance has received the Reserve Bank of India’s (RBI) approval to raise $1 billion through external commercial borrowings (ECBs), after having raised $600 million earlier this year via the same route, MD George Alexander Muthoot tells businessline.
His comments come at a time when the regulator is pushing non-banking finance companies (NBFC) to diversify their liability base, in order to lower reliance on bank borrowings. Edited excerpts:
Are you trying to lower reliance on bank loans?
Not exactly. We are aiming for growth and require funds for it, whether it is from banks or other sources. Having said that, our non-convertible debentures (NCD) issuances have risen. We have also taken ECBs. We have already raised $600 million via ECBs, and now we have got the permission for another $1 billion from the RBI, which we will raise if need arises. ECB is slightly more costlier than local funds, but due to our ratings we get them at a lower rate. Further, it helps us to diversify our funding sources.
Gold loan book grew 28 per cent y-o-y. What is the guidance for H2FY25?
We are planning to grow our gold loan book by 25 per cent for the full year. The optimism comes from the fact that there is a huge demand. Over the last two years, people were seeking more purchasing power in hand, which was being met by loans. But in the last two quarters, the RBI and the Finance Ministry have been cautioning banks and NBFCs on unsecured loans. They had increased risk weights to slow down such lending. Also, earlier people were getting money from fintech companies , which has completely dried off now. Fintechs are actually dead and gone.
But people still need money to have purchasing power. I compare this scenario to Covid-19 period, when unsecured lending came to a halt. As people needed funds, the next best option was gold loans, and we were able to help many during those times. . An economy won’t grow without people have the purchasing power. We are happy that we are able to help the borrowers and that is the reason for the rise in our gold loan business. Of course, gold prices play a part, but pre-dominantly demand is the main driver for our growth.
What is the guidance on spread?
Our interest spread was 9.52 per cent in Q1 and rose to 9.64 per cent in Q2. Yield grew from 18.26 per cent to 18.65 per cent, while cost of borrowing also rose from 8.74 per cent to 9.01 per cent. All metrics are moving proportionately, and we would like to maintain our spread between 9 and 10 per cent. I believe cost of borrowing has peaked at this juncture.
Stage-3 ratio rose as you did not auction gold post default. Would it be stable at 4.30 per cent in Q3?
Our gross stage-3 (GS-3) ratio was 3.98 per cent last quarter and rose to 4.30 per cent. It will be very unfortunate for our customers if we directly auction gold upon default. We are trying our best by requesting them to renew the loan or pay interest , so that we don’t need to auction. We are just giving customers more time, that is why GS-3 has risen to 4.30 per cent. However, not even ₹1 loss is expected from these loans. We will maintain GS-3 at current levels going ahead.
Gold prices have risen considerably in the past months. When cycle turns, how will it impact business?
We provide loans up to 75 per cent of the gold value, based on the average price of gold in the last 30 days. Also, price fluctuations is a market phenomenon.
Does the NBFC partner with fintech companies for gold loans?
Around 99 per cent of our customers like to opt for gold loans at branch offices. They, themselves, will bring gold to the branch, hand it over to manager, keep it in locker and take the loan. We also offer doorstep service , wherein our staff goes to the customer’s house, brings gold to the branch, assesses it and then extend a loan. Either way, we cannot process a loan without the gold being brought to the branch office. And, we don’t have any fintech partnerships. We have 5,000 branches and offer services to our clients easily.