Rising Gold Prices Have Enabled Customers To Borrow More From The Same Collateral Gold: Muthoot Fin

Summary

In this interview, Mr. George Alexander, MD of Muthoot Finance, discusses the impact of rising gold prices on the gold financing business in India. With gold prices surging past $2600 an ounce, the value of gold held by customers has increased significantly. This has led to a higher demand for gold loans, as customers can now borrow more against the same gold value. Alexander highlights that Muthoot Finance is experiencing an uptick in market demand for gold loans, especially as unsecured loans become more challenging to obtain. He also addresses the company's loan to value (LTV) ratio, which is maintained at around 70%, and the potential for AUM growth with the current gold price boom. The conversation also touches on the company's liability profile and the anticipated effects of potential interest rate cuts on their net interest margin.

Takeaways

• 📈 Gold prices have significantly increased, with spot prices surpassing $2600 an ounce, marking a nearly 60% rise from two years prior.
• 💹 The surge in gold prices has a positive impact on the gold financing business in India, as it allows for increased lending against gold holdings.
• 🏦 Muthoot Finance, a key player in the gold loan sector, is capitalizing on the high gold prices and reports a rise in market demand for gold loans.
• 📉 Despite the potential for higher loan-to-value (LTV) ratios due to increased gold prices, Muthoot Finance maintains an average LTV of around 70%, with some flexibility.
• 🔼 The company has observed a significant uptick in gold loan demand, partly due to the difficulty in obtaining unsecured loans from banks and other financial institutions.
• 🌐 International gold prices are a key driver for the Indian gold financing business, influencing both customer behavior and company strategies.
• 📊 Muthoot Finance aims to maintain a net interest margin of around 10%, adjusting lending rates in response to changes in borrowing costs.
• 📉 The cost of borrowings has plateaued, with Muthoot Finance anticipating a potential decrease in the future, which could benefit customers through lower lending rates.
• 🏡 The home finance division of Muthoot Finance is performing well, with a focus on secured loans and a current AUM of around 2,500 crores.
• 📢 Muthoot Finance has plans for an IPO for its subsidiary Muthootstar MFI, with the market launch anticipated within the next year, pending favorable market conditions.

Q & A

What has been the recent trend in gold prices as discussed in the script?

Gold prices have been rising, with spot prices in the US surpassing the $2600 an ounce mark.

How does an increase in gold prices impact the gold financing business in India?

An increase in gold prices allows companies like Muthoot Finance to lend more money against gold as collateral, as the value of the gold held increases.

What is the maximum loan to value (LTV) ratio that Muthoot Finance offers on gold loans?

Muthoot Finance offers a maximum loan to value (LTV) ratio of 75% for gold loans.

What is the average loan to value (LTV) ratio that customers typically utilize according to Muthoot Finance's MD?

The average LTV ratio utilized by customers is around 68% or less than 70%.

What has been the impact of the rising gold prices on Muthoot Finance's business?

The rising gold prices have led to an uptick in market demand for gold loans, and Muthoot Finance has experienced good growth momentum in this sector.

Why has there been an increase in demand for gold loans according to the discussion?

The demand for gold loans has increased because unsecured loans have become more difficult to obtain, making gold loans a more attractive option.

What is the current average cost of borrowing for Muthoot Finance?

The current average cost of borrowing for Muthoot Finance is around 9 to 9.5%.

How does Muthoot Finance plan to respond to potential interest rate cuts in the US and India?

Muthoot Finance intends to pass on the benefits of lower borrowing costs to customers by reducing their lending rates, maintaining a net interest margin of around 10%.

What is the maturity profile of Muthoot Finance's liabilities book?

Around 50% of Muthoot Finance's liabilities book is linked to bank rates, which reset every three to six months, and 20 to 25% is in the form of NCDs with fixed rates for 3 to 4 years.

What is the growth guidance for Muthoot Finance's home finance division?

The home finance division is expected to see good growth, with the asset under management (AUM) around 2,500 crores.

What is the current status of Muthoot Finance's plans for an IPO for its subsidiary Muthootstar MFI?

Muthoot Finance has received the green signal from the Securities and Exchange Board of India (SEBI) for the IPO of Muthootstar MFI and is waiting for a good opportunity time, possibly within the next year.