Synopsis

The first quarter of last year was very difficult. Shops were all closed, businesses were closed. But in Q2 and Q3, things started picking up. Once businesses reopened, the credit requirement was so huge that every lender — gold lending, personal loans, any other loans — started doing better.

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George Alexander Muthoot, MD, Muthoot Finance

George Alexander Muthoot, MD, Muthoot Finance, talks about how the gold loan business shone bright amid the pandemic. Edited excerpts from his interview to ET Now:

What are the key triggers for the gold loan up-cycle that you are currently witnessing?
The offtake of gold loan is generally a corollary to the requirement of funding in the economy. In the last quarter all the shops, small traders, MSMEs were closed. Therefore people did not require funding, which is why there was little offtake.

In June and July, we are seeing more and more shops and businesses opening up. Businesses require financing, so all types of loans are in demand. Gold loans, being the easiest and the simplest and the quickest, are in good demand. This trend is likely to continue in the next quarter as well.

Borrowers also see gold loans as a good source of cheap funding. What is the kind of yields charged by gold financiers like yours as well as banks? Also, how is the competition scenario?
To some people it is cheap, to some people it is not. It is not cheap when you compare it to unorganised sector sources or to local money lenders. When you compare it to a bank, it is definitely not cheap.

People basically come to NBFCs like Muthoot for a gold loan because it is convenient, quick and easy. That is the main consideration. When it comes to the usual gold loan size of Rs 50,000 - Rs 1 lakh, the actual impact of the difference in gold prices is not much. Whether it is cheap or not depends on who the borrower is and who the lender is.

For loans, people go to other sources as well. Each has its own USP. For example, unorganised players work 24x7. Or some of them not only accept gold but other things too. A big customer who already has a bank account or a bank loan can think of going to the bank, where it would be cheaper for him but may take a little more time. So, each has its own USP.

As for yields, for us it should generally be in the range of about 19-20%. But then we look at the interest spread and try to keep it intact. So, it comes to about 9% to 10% for us.

Being a dominant player in southern India, how has demand been? Also, tell us about the impact of the pandemic and current consumer trends?
The first quarter of last year was very difficult. Shops were all closed, businesses were closed. But in Q2 and Q3, things started picking up. Once businesses reopened, the credit requirement was so huge that every lender — gold lending, personal loans, any other loans — started doing better.

Many lenders, however, were a little reluctant to give personal loans and MSME loans without collateral. That pushed up the demand for gold loans last year.

This year too, we see the same trend. Quarter 1 was very difficult. Overall demand for loans was much lesser. But by the end of June and then July, things are opening up and the Covid scare also slowly receding. Consumption has started picking up. When consumption starts picking up, demand for funding goes up. And gold loans — being convenient, quick, easy and simple — do well.

As soon as people can avail other lending options, they substitute that with the gold loan theyve already taken. So, the first preference is gold loan, and that is why we are seeing good demand in this quarter.

In the recent quarter, you saw fairly strong AUM growth of about 5% sequentially. What is the outlook now for FY22? Do you think it can sustain above 20% plus for the coming two years?
Now that things have started picking up, we will be able to do at least 15% growth this year. And mind you, that too on a higher base. The base is going up every year.

If things turn out even better and everything opens up, we can even go above 15%. But I think its minimum 15% for this year.

Some of the analysts are forecasting a 21% EPS CAGR and 27% ROEs for you through FY24. Would you say this is a fair assessment?
I would not like to comment on that. All I can say is that we will try out best to do a minimum of 15% growth. All other things are just derivatives of that only.

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