Muthoot Finance to go slow on MFI biz amid stress in the segment: MD

George Alexander Muthoot says the firm will prioritise gold loans due to strong demand and regulatory pressure on unsecured lending, as MFI exposure is scaled down

Muthoot Finance is planning to slow its microfinance business amid stress in the segment and shift focus to gold loans where demand remains strong, company's Managing Director (MD) George Alexander Muthoot said.

 

Unsecured loans have become harder to access following a tighter regulatory stance by the Reserve Bank of India (RBI). 

 

Muthoot said the draft gold loan guidelines, if implemented in the current form, would increase compliance cost, especially for new entrants, since it will weigh on the average asset under management (AUM) per branch. 

 

Shares of Muthoot Finance fell 7 per cent on Thursday despite the lender reporting a strong quarter with robust AUM growth.

 

“The strategy is to go slow in MFI (microfinance institution) business and process only quality loans and not cover leverage customers. Earlier, the portfolio in MFI used to be ₹10,000 crore, which has come down to ₹8,000 crore in the past two quarters. But, maybe after two quarters, things will stabilise in the sector,” Muthoot said.

 

He said most microfinance lenders, including Muthoot Finance, reduced lending rates after the RBI crackdown on MFIs. Gold prices have been moving in favour of the industry which is also aiding loan growth, he added.

 

ALSO READ: Muthoot Finance drops 5% even as AUM hits record high; Q4 breakdown here

 

The company's gold loan AUM jumped 41 per cent year-on-year (Y-o-Y) to ₹1.03 trillion as of March 31. The average gold loan AUM per branch was ₹21.21 crore as of March 31, up from ₹15 crore a year ago — this is its highest ever jump in AUM. 

 

Muthoot said that as a leader of an association of gold loan companies, Muthoot Finance has given its views regarding gold loan guidelines, suggesting that norms related to loan-to-value should be relieved. 

 

Sharing plans on diversification and branch expansion, Muthoot said the firm was presently focused on improving productivity, ensuring a further increase in average AUM per branch. Moreover, the company's focus will be on a product mix in gold loan and tweaking products as per the need of customers. On raising funds, he said the company had an approval of $1 billion of external commercial borrowing.