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GOLD Lending: Gold prices are rising which is good for gold lending companies : Manappuram Fin MD

“The increased cost of funds may not be an issue as excess liquidity available in the system has been a challenge. If the cost of funds increases, this can be passed on to customers. If there is a increase of 0.5% or 1%, it can be passed on to customers,” explains Vice President NandakumarMD & CEO, Finance Manappuram.

Your gold loan assets under management grew 8% sequentially, while after-tax and NII earnings took a hit. How should your shareholders and analysts put them together?
This time, during the pandemic, there was a change in the customer profile. Customers drew a lesser amount, small bills. There was less demand for this profile class, so we had to target larger loans. Again, despite growing around 23% from the first quarter, we were unable to post this profit due to the competition we had for higher tickets. In smaller notes, demand was less so our yield fell to around 28.5%.

Also our microfinance company will take one or two more quarters to get out of this pandemic situation like other companies as well. But despite this, we were able to increase our gold lending and the growth of consolidated assets under management increased by around 10%, mainly thanks to gold. I expect things to improve over the next few quarters.

What has really changed for such problems to emerge with respect to gold lending? Or is it just a matter of one, two months as gold prices start to rise again?
Rising gold prices are good for gold lenders. Compared to the market, we have grown more. In the first quarter, we had a dip. From there, we were up 23%, but there was still some pressure on yields, mainly because demand for the small note was less. But the demand is growing. The economy is back on the wheels, especially the rural and semi-urban economy. In addition, gold prices are rising. All of this should help improve performance in the coming quarters.

The cost of financing would increase as rates begin to rise. How prepared is the company for this?
This may not be a problem because the excess liquidity available in the system has been a challenge. If the cost of funds increases, this can be passed on to customers. If there is a 0.5% or 1% increase, it can be passed on to customers.

We also hear about degrowth in the hinterland. How should someone zoom out and watch all of this?
We have experienced growth. Over the next few quarters, the pressure of depressed yields will be offset by growth. We grew at a steady rate of 1.5-2% each month. Even with other branches, the collections have improved. Recoveries reached 100% in microfinance and also in utility vehicles in rural areas, recoveries are around 110%. So things got back to normal and disbursements also started.

Our profit was almost negligible in the non-gold portfolio. This is the reason for lower profitability, lower return, lower ROE, etc. All this seems positive because the situation has changed.

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