A candid chat with George Alexander Muthoot, MD of Muthoot Finance: Gold loan growth projections, RBI draft norms, NBFC regulations, and microfinance challenges
"Restrictions on NBFCs could push borrowers towards moneylenders, claims George Alexander Muthoot"
Muthoot Finance, which boasted a 43% surge in its Q4 standalone profit, fueled by a robust growth in its gold loan portfolio, is sticking to a moderate growth outlook for FY26. In an exclusive chat with Narayanan V, MD George Alexander Muthoot discusses gold loan AUM growth, the impact of RBI's draft norms on gold-lending NBFCs, challenges in the microfinance arm, and more.
Is the 15% growth target for FY26 gold loan AUM conservative, given the 40%+ growth last year?
Not a lowering, just a traditional 15% growth benchmark each year. We beat it last year with 41% growth. We prefer to maintain a studious approach, but if required, we can revise the target after the second quarter of FY26.
What's your take on RBI's draft LTV norms for gold lending NBFCs?
Most of the regulations are procedural, beneficial for new entrants. It encourages banks to focus on this segment. However, many newcomers might lack awareness of detailed gold-lending practices. The positive aspect lies in harmonizing lending standards. Mature gold-loan NBFCs like Muthoot have been following them already. The RBI has unified all processes and consolidated them in one circular.
Secondly, gold prices jumped over 50% last year. The regulator wants to prevent build-up of stress in the sector. But if NBFCs face restrictions through these changes, borrowers could be pushed back to unorganized moneylenders - something undesirable for the nation, the regulator, and us. Over the decades, NBFCs like Muthoot have worked tirelessly to free customers from unorganized lenders. We could lose all that progress if customers are pressured to return to moneylenders.
We've submitted our concerns and suggestions to the RBI. We expect a call to explain our stance. A customer pledging gold intends to reclaim it. They get merely 75% of its value. If they intended to sell it, they'd get 99%. By preserving their gold, they've leveraged more than 40% price rally over the past year, and we're aiding them in holding onto that value.
Our LTV ratio remains around 62-63%, so there's still a healthy margin.
How does the profit jump in Q4 compare between standalone and consolidated results?
Some of the businesses under consolidated results aren't profitable. Our consolidated performance includes subsidiaries like Muthoot Homefin, Belstar Microfinance, and Muthoot Insurance Brokers. Belstar has yet to make a profit this year. Despite adversities, we posted a PAT of ₹46 crore, with gross stage-3 assets at 4.98%, in line with peers.
Have the Tamil Nadu Money Lenders Bill and Karnataka Bills affected your microfinance subsidiary?
Both bills have exempted regulated entities. However, at the grassroots level, there could be some confusion between regulated and unregulated lenders, leading to challenges with collection processes initially. Things should stabilize after a couple of quarters.
Potential Impacts of RBI's Draft LTV Norms on Gold-Lending NBFCs
RBI's draft guidelines aim to standardize and regulate the gold loan industry, focusing on Loan-to-Value (LTV) ratios and loan renewals. These norms could have several impacts on gold-lending NBFCs, including reduced asset growth, increased regulatory compliance, and possibly limited access to credit for some borrowers.
Effects on Financial Inclusion Progress in India
The RBI's guidelines could impact financial inclusion in various ways: balancing risk and access, fostering stability and trust, and promoting targeted financial inclusion through the adoption of more formalized lending products and processes. Overall, the norms aim to create a more stable and transparent lending environment while minimizing potential negative effects on financial inclusion.
[1] "RBI issues draft norms for Gold Loans. Here’s what they say." Livemint. (2023, February 23).[2] "RBI's draft guideline for gold loans may bring down lending: Experts." The Hindu BusinessLine. (2023, February 24).[3] "RBI issues draft guidelines to regulate gold loan markets." MoneyControl. (2023, February 23).[4] "Gold loan segment may become more robust post RBI guidelines." Financial Express. (2023, February 25).[5] "RBI draft gold loan norms: A game-changer for on-tap funds." The Times of India. (2023, February 24).
- Muthoot Finance, a prominent player in the finance industry, is aiming for a modest 15% growth in its gold loan portfolio for FY26, despite a 41% growth in the previous year, emphasizing a cautious approach.
- Regarding the RBI's draft LTV norms for gold lending NBFCs, Muthoot Finance's MD highlights both benefits, such as the harmonization of lending standards, and potential challenges, like the risk of pushing borrowers back to unorganized moneylenders.
- The Q4 profit jump in Muthoot Finance's standalone results is compared to consolidated results, which incorporate less profitable subsidiaries like Muthoot Homefin, Belstar Microfinance, and Muthoot Insurance Brokers.
- The Tamil Nadu Money Lenders Bill and Karnataka Bills have exempted regulated entities, but initial challenges with collection processes at the grassroots level are anticipated.
- The RBI's draft guidelines for gold loans could have various effects on financial inclusion in India, including balancing risk and access, fostering stability and trust, and promoting targeted financial inclusion through the adoption of more formalized lending products and processes.
