Muthoot Finance: Gold lending grew well, demand in Q2: George Alexander Muthoot, Muthoot Finance


In the second quarter, we saw good growth and good demand for gold loans. Hope he will be there in quarter three and fourth quarter as well, said George Alexander Muthoot, MD, . Edited excerpts:

You said earlier that you would use auctions as a last resort, and we haven’t seen any auctions. Does that indicate that to some extent the pressure you were seeing on asset quality is easing somewhat? How did the collections go and can you tell us about the highlights of the first quarter?
This quarter has been definitely difficult. Last year in the same quarter, the lockdown took place in March, April and May. This year, lockdowns were more pronounced in April, May and June. So, throughout the quarter, there were a lot of lockdowns in many states. But despite that, we were probably able to have reasonably good fundraising and growth as the growth didn’t really happen this quarter, but in the second quarter we saw good growth and good demand for gold loans. I hope he will be there in quarter three and also in the fourth quarter.

Regarding auctions, it’s not that we don’t do auctions, etc. We have to do it too, but it is only a last resort. We do our best to persuade the client to take over the loan by offering them concessions or whatever, but ultimately we try to give the client back the gold. At worst, if there is a requirement, we will also do auctions. Probably last year we had an auction of Rs 400 crore. Prior to this year we did an auction of around Rs 900 crore; so 800, 900, 400 is reasonable. I am sure that in the future also auctions are necessary, but we try to keep them to a minimum: it is our policy with auctions to keep customers happy.

We have seen an increase from the gross level 3, it has risen to Rs 641 crore and this compares to Rs 464 crore in the last quarter. Is it the continuity of what you see in terms of pressure on your customers’ cash flows? What is the response you got this quarter regarding collections?
When you talk about stage 3, we’re generally comfortable with anything between 1% and 2%. Now at stage 3 it is only 1%, and before it was less than 1%. So Rs 600 crore is actually nothing to worry about, nothing to worry about. Moreover, for all these loans, we have the full collateral with us, so we consider them as “we are in the money”. If you’re in the money, why should we bother a customer. We can definitely keep these loans at stage 3 and continue to work in the business so that it does not affect our growth etc.

As long as we are able to keep it in our books, it means that when we do it as step 3, we are not earning interest on such things. But nonetheless, even without it, we are able to maintain our profitability. This makes sense since we are in the money, so as not to disturb the customer and sell the gold at auction. As long as stage 3 is between 1% and 2% it is not alarming and ultimately we have the gold with us, it will never become a loss asset for us.

Has much of the impact of the second wave of COVID already been felt or do you think there is a possibility of reversal of supply as well?
We’ve never had any interest reversals on the main asset, but I don’t think we’re going to have to have any principal or interest reversals in the gold lending industry. We can probably see a few small, small reversals and little stress on the non-gold loan portfolio which is only very minimal as far as we are concerned.


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