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Gold lending industry is not a bed of roses, says Muthoot chief financial officer

Excerpts: In an interaction with BusinessLine, Muthoot, who oversees consolidated assets under management of around 61,000 crore (of which around 90% are gold loans), observed that more players are entering the lending industry. gold means they see good prospects. He pointed out that this also justifies MFL’s business model, which has been refined over the past eight decades.

We have a stable business. We have not changed direction. The gold lending activity has good prospects. The market is huge. There is room for everyone. And whoever concentrates will undoubtedly get good deals.

Many lenders have jumped on the gold lending bandwagon. How do you strengthen your business?

All entities that have entered the gold lending business will face many operational challenges in the future and will change direction. This is what usually happens.

The activity is operationally very intensive – taking the gold, its custody, returning it, fighting against fraud, etc.

New players will encounter operational challenges. We have gone through economic cycles. This business is not a bed of roses.

So, don’t you see the competition as a drag?

I also think customers who were previously reluctant to take a gold loan are also interested in this product now. They see it as an alternative to borrowing.

We don’t see competition as a barrier to doing business. This will only encourage serious players to intensify their focus on the business. More people going into this business means they see good prospects. This means that what we have done from the start has been justified. The competition will be there. It will only expand the market.

Given that the 1st quarter was a failure due to the second wave of Covid-19, will you be able to meet the target of 15% year-on-year growth in assets under management?

Our stand-alone AUM is approximately 55,000 crore. We gave a 15 percent growth forecast. In the first quarter, we couldn’t do much. In the second quarter, we were able to achieve approximately 5% quarter-over-quarter growth. So in the third and fourth quarters, we should be able to catch up and achieve at least 15% growth.

We will continue to grow at a rate of 15% over the next three to four years. This is a reasonable rate because the base is also increasing.

Three years ago our average loan ticket size was around 35,000. Today it is around 60,000. This increase is directly proportional to the price of gold and the overall appetite for gold lending.

With the RBI having reduced regulatory arbitrage between banks and NBFCs, will you consider converting to a bank?

For the past three or four years we have been closely watched by RBI as we are a systemically important non-deposit taking NBFC. Almost all regulations applicable to banks apply to us. There is very little regulatory arbitrage between banks and NBFCs.

To date, we see no advantage (in converting to a bank). But the board has yet to make a decision. Overall, in recent years the Council has not given it any thought.

So what is the advantage of becoming a bank? What is the big advantage of getting low cost deposits? Depending on our rating, we can also raise resources inexpensively. We may not have the luxury of zero rate checking accounts and low interest SBI accounts etc. But the differential interest rates on resources between NBFCs and banks are actually narrowing.

At the end of September 2021, our capital adequacy ratio was 27.60%… The current level of capital will be sufficient to support the growth of the company for three to four years. But the accumulated profit (retained earnings) is also there. So the capital could last longer.

Given that you have forecast your business to grow at 15% year-over-year, are you planning to increase your capital?

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