Never miss a great news story!
Get instant notifications from Economic Times
AllowNot now


You can switch off notifications anytime using browser settings.
10,829.3588.0
Stock Analysis, IPO, Mutual Funds, Bonds & More

Bigger NBFCs should be given RBI pipeline for emergency funding, says George Alexander Muthoot

The effect of the rate cut has not translated or come to NBFCs., says Muthoot Finance MD.

ET Now|
Updated: Jun 12, 2019, 07.11 PM IST
0Comments
George Alexander Muthoot-1200
Although April was not that good, May and June is looking bright and prosperous for gold loan sector, says George Alexander Muthoot, MD, Muthoot Finance, in an interview with ETNOW.

Edited excerpts:


The current state of liquidity has shifted focus to retail NBFCs like yours. Analysts seem to be quite upbeat on the growth potential there. How are you foreseeing growth going ahead? What are some of the trends that you are observing?
The last quarter was quite good and in April and May, it was a little flat in the sense that it was election time etc. But soon after the elections, business has picked up and we saw a great pick up in gold loan disbursals. The demand credit for gold loan is actually good now and this quarter should look good because although April was not that good, May and June is looking bright and prosperous for gold loan sector.

Talking about the core gold finance business, what is the AUM growth that you are targeting for FY20? Do you feel that it is going to be sustainable?
We ended gold loan business last year with Rs 33,500 crore of AUM. It showed 16% growth last year and we expect the same 16% or more growth this year. If things look good and everything is normal, unless there is a disruption in the market, we should see around 16-20% growth this year in the gold loan business AUM growth.

What is the outlook on margins for FY20? Will you be passing on the interest rate cut by RBI to the customers while maintaining your margins?
Yes, interest rate cut is only on paper we have not seen any interest rate cut. In fact, our borrowing rates have slowly gone up. The banks have not reduced the lending rates to NBFCs and for us they have not reduced any lending rates. Although they have not stopped lending, they have actually increased the lending rates slowly. Even the NCD rates have gone up. So, the effect of the rate cut has not translated or come to NBFCs. We have not seen any rate cuts in our borrowing cost as of now.

Given the rising funding cost environment, what would be your own future source of funds? How do you see a borrowing mix shape up given NCDs, CPs as well as MF markets are seeing a massive liquidity crunch?
We have fairly distributed liquidity or sources mix. We have about Rs 33,000 crore in gold loan and Rs 10,000 crore of net worth, Rs 12,000 crore of bank borrowings; Rs 7,000 crore of NCDs and Rs 4,000 crores of CPs. There are two tranches of NCDs -- Rs 700 crore and Rs 1,000 crore, of which the last one was closed yesterday. We collected about Rs 900 crore in that issue. We are now focusing a little more on retail NCDs, not corporate NCDs. We have seen a good response from our customers. We had a good retail franchise for NCDs which was not really used in the last three-four years. Now we have revived it and this year we should be raising about Rs 5,000 crores in the NCD market itself.

In FY19, profit growth was slower than loan growth. Do you see this improving in FY20?
As I said earlier, the AUM growth should take about 15% to 20% of the gold loan business. As far as the subsidiaries are concerned, put together we should see about 20% growth in the loan book this year, at the end of this 2020.

Subsidiaries contribute about 12% to loan assets. Is that contribution rising? What is the outlook over the next couple of years?
We wanted the other verticals to do better than 11% but something happened in the home finance business vertical, We have reduced growth in the home finance sector. In the last four-five months, we have not seen any growth or rather we have cut down our disbursements in the home loan sector mainly because we are not able to identify good builders. All our home loans are in the affordable sector. These are Rs 10-11 lakh loans. These customers who get into trouble when builders are not able to complete the projects.

We are now looking at almost completed houses for financing our borrowers so that borrowers do not get into trouble. That is why in last six months, we have not seen any real growth in our disbursals in home finance. However, gold loan is picking up. So all said and done, our focus will always be on gold loans. Then only, we will go into the other verticals because there is no business as good as gold loan and it is also our forte.

How have you viewed the revised RBI framework and its impact on the NBFC sector as a whole?
It is about the liquidity margins, liquidity reserves etc which we have to keep. That will have an impact on the little bit of idle funds being locked in government securities. Other than that, we do not see any big issue there but as far as gold loans are concerned, our loans are self liquidating and short tenure loans. We do not see any liquidity issues other than having to keep some money as per the suggested RBI guidelines on the liquidity reserves, which we have to keep with the banks or government securities.

What are your expectations from the central bank? Also, what are your expectations from the government for improving the liquidity situation in the economy and the NBFC sector?

Bigger NBFCs with large network should be given some sort of RBI pipeline for emergency funding, say about 10-15% of the net worth. The large NBFCs are the ones which require more money and RBI can think of a policy where large NBFCs with maybe Rs 5,000-10,000 crore of net worth can be given a 10-15%, maybe a pipeline funding in times of emergency.
0Comments

Also Read

There will be no impact of elections on gold loans or recovery: George Alexander Muthoot, Muthoot Finance

We expect 15-20% AUM growth for whole of next year: George Alexander Muthoot

Muthoot Finance will consider more fund raising via NCDs: George Alexander Muthoot

Expect 20% growth in gold loan portfolio: George Alexander Muthoot, Muthoot Finance

Comments
Add Your Comments
Commenting feature is disabled in your country/region.
Download The Economic Times News App for Quarterly Results, Latest News in ITR, Business, Share Market, Live Sensex News & More.

Other useful Links


Follow us on


Download et app


Copyright © 2019 Bennett, Coleman & Co. Ltd. All rights reserved. For reprint rights: Times Syndication Service