Rising Gold Prices Have Enabled Customers To Borrow More From The Same Collateral Gold: Muthoot Fin
Summary
TLDRIn 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.
Outlines
📈 Gold Financing in India Amidst Rising Gold Prices
The interview with Mr. George Alexander, MD at Muthoot Finance, discusses the impact of gold prices soaring past $2600 an ounce on the gold financing business in India. Mr. Alexander explains that with the increase in gold prices, the value of gold held by customers has risen substantially, which allows them to borrow more against their gold. The company's loan to value (LTV) ratio is typically around 75%, but the average LTV dispersed is around 68-70%. The demand for gold loans has seen an uptick in the past five to six months, partly due to the difficulty in obtaining unsecured loans from banks and non-banking financial companies (NBFCs). The conversation also touches on the company's AUM growth, which was initially guided at 15% but may be revised upwards due to the tailwinds from higher gold prices and increased demand for gold loans.
💹 Impact of Interest Rate Changes on Muthoot Finance
This segment delves into the effects of potential interest rate cuts in the US and India on Muthoot Finance's liabilities and net interest margin (NIM). Mr. Alexander mentions that the company has maintained a NIM of around 10%, adjusting for changes in borrowing costs. With expectations of rate cuts, the company plans to pass on the benefits to customers by reducing their lending rates. The discussion also covers the maturity profile of the liabilities, with 50% linked to bank rates that reset every three to six months. The company's cost of borrowing has plateaued at around 9-9.75%, and Mr. Alexander anticipates rates to decrease in the future. The conversation concludes with a brief mention of the company's growth in the home finance division and the microfinance sector, with a 30-35% growth guidance for the latter.
🏢 Future Growth and IPO Plans for Muthoot Finance
In the final part of the interview, Mr. Alexander provides insights into the growth expectations for Muthoot Finance's home finance division, which currently stands at around 2,500 crores and is expected to see significant growth. He also discusses the microfinance sector's contribution to empowering customers through providing them with purchasing power. The guidance for microfinance growth is around 30-35%, although the exact figure is not confirmed. Lastly, Mr. Alexander shares that the company has received the green signal from the Securities and Exchange Board of India (SEBI) for an initial public offering (IPO) of its subsidiary, Muthoot Star Finance. The company is awaiting a favorable market opportunity, possibly within the next year, to launch the IPO.
Mindmap
Keywords
💡Gold financing
💡Spot gold prices
💡Loan-to-value (LTV)
💡Muthoot Finance
💡Gold ornaments
💡Unsecured loans
💡Interest rates
💡Net interest margin (NIM)
💡Asset Under Management (AUM)
💡Microfinance
💡Initial Public Offering (IPO)
Highlights
Gold prices in the US Comex market have surpassed $2,600 an ounce, representing a significant increase from $1,650 just two years ago, which marks a 60% rise.
The rising gold prices have positively impacted the gold financing business, allowing customers to borrow more for the same amount of gold collateral.
Muthoot Finance, a major gold loan provider, finances only gold ornaments and does not engage in bullion financing.
Customers who previously received 100 rupees for their gold can now get 160 rupees due to the increase in gold prices.
The loan-to-value ratio (LTV) for gold loans is capped at 75%, but most customers only utilize about 68-70% of this limit.
Demand for gold loans has increased over the last five to six months, partly due to a decline in availability of unsecured loans such as personal loans.
Muthoot Finance has experienced growth momentum across its 6,000 branches, with a strong performance in the last quarter.
The company expects continued demand for gold loans as they are a secured option and customers appreciate the ease and speed of borrowing.
Muthoot Finance is forecasting a 15% AUM (Assets Under Management) growth, with plans to revisit this guidance after the second quarter results.
As gold prices continue to rise, more customers are seeing gold as a valuable asset they can borrow against, further boosting demand for gold loans.
Muthoot Finance maintains a net interest margin (NIM) of around 10%, absorbing minor increases in borrowing costs when possible.
Interest rates in the US are expected to drop by 100-125 basis points, and this could have a ripple effect on borrowing costs in India.
Muthoot Finance plans to pass on any reductions in borrowing costs to customers, maintaining its NIM at around 10%.
The company's cost of borrowing is currently between 8.75% and 9%, having risen by about 100 basis points over the past year.
Muthoot Finance's home finance division, with an AUM of around ₹2,500 crore, is expected to experience significant growth.
Muthoot Finance's microfinance arm is expected to grow by 30-35%, with an IPO planned in the next year, pending favorable market conditions.
Transcripts
but uh speaking of green nothing as we
were just discussing earlier nothing has
been shining as bright as gold perhaps
uh remember spot prices in the US Comics
gold prices have cruised past the
$2600 an ounce Mark as well so what does
this mean for the gold financing
business here in India Well mutur
Finance is the company in Focus uh those
prices have been running at record
levels so what happens in an environment
like this is it business positive let's
ask Mr George Alexander mut MD at muta
Finance sir thank you so much for
joining in maybe your smile is saying it
all you know we had an analyst on the
show just before you joined and uh a lot
of the traders in the market are calling
for 3,000 on spot gold in in US terms
but to understand the business Dynamics
you know typically in a period when gold
prices start moving higher the value of
gold you're holding that's gone up
substantially what does that mean for
business are you able to lend more what
is a loan to value uh General level uh
that you you like to hold Visa the the
prescribed regulatory Norms just take us
through the
Dynamics thank you good morning and
happy AUM to all of you we are just
happy to you as well sir now yes to you
and to to all your customers and of
course to all our viewers as well thank
you thank you thank you the H is great
so uh as you see the gold price has been
going up if you look at the
international the dollar price it was
about
1,650 exactly 2 years back today it is
2,600 it's almost a 60% Green from what
we had two years back so I think all the
people who have gold with them are quite
happy happy to see the value of their
oraments going up 60% in the last two
years that apart as far as gold loan
companies are concerned of course as
usual we Finance only gold ornaments we
don't Finance bulling Etc but then all
the customers who have been taking gold
from us now as you said have been have
can get more for the same value so if
they were getting 100 rupees earlier
they can get 160 rupees today because
the loan to value is 75% is the max but
at any given point of time people don't
take all the 75 our average uh Lo to
Value dispersal at any point of time
would be in the range of 68 or less than
70%
only uh we see actually a good uptick in
the market demand for gold loans see the
sense we are getting from the market
from all our 6,000 branches all over the
country is that in the last five six
months demand for gold Lo is definitely
picking up and last quarter we were able
to do well and we continue to have good
growth momentum from the branches for
the gold loan group
I should I would say this is one reason
for that would be in the last 3 four
months unsecured loans have been little
been little difficult to combine for
people whether the whether be personal
loan or the unsecured loan Etc not that
easy today because Banks and nfcs are
going a little slow on that so that
keeps the demand for gold loans or loan
against SC on a upti that is why I see
wec good demand here and as usual the
focused players the players who are
focused on go loans have always had a
good time as a got a good run and as as
I've been saying this a quite secured
loan and customers are also quite happy
to get loans without much delay and that
is why the gold Lo sector is go is doing
well and I I'm sure it will continue to
do well in the days to come on sir sir
just to go back to the LTV Point uh so
so are you saying that not just the
industry but you as well uh at mut also
you're maintaining an LTV of roughly
around 70 just under 70 so there's
anywhere 5% you know uh an elbow room
that you have and then with the
appreciation in the price what is the
additional lending you can do I think in
our last interaction you mentioned that
you're looking at 15% AUM growth you you
were anyway going to revisit that by the
end of the second quarter and and now
you have this huge Tailwind in the form
of uh you know higher gold prices plus
like you're saying there's lesser
competition people are not getting
personal loans unsecured loans that
easily so now what is the a growth that
you can
forecast I think let us wait for the
next result wait for a month when we are
coming out with the results I think we
we will the board will take a decision
on the revision in the guidance today
the guidance stands at 50 I'm sure as
you know we have been doing well in the
first quarter probably we will uh think
of a guidance revision after the first
quarter results are there but as you
said people don't everybody does not
need the whole 75% some people take only
65% some people take 60 some people take
all the 75 but the fact is that since
gold prices are hitting astronomical
levels people are looking at gold as
something which of more value today and
more value on which they can B
that is what is the big thing what we
are seeing now they are seeing news
about gold price Etc every day in the
newspaper so people everybody has some
gold so they are quite happy to see that
their value of their ornaments is going
up and then with players like mut and
the banks here who can on from whom they
can borrow money easily I think it's a
win-win for the
customer M hi good morning prant here
and happy own to you sir and to family
you had I hope you had a wonderful own
and a wonderful own sadya uh and so just
to to uh to go on uh to shift the focus
slightly we're talking about AEM growth
what about on the liability side uh we
are as we were discussing earlier the
cusp of interest rate starting to come
off in the US uh expectations are that
this year in the US there'll be at least
125 basis points worth of rate Cuts here
in India also we may see a rate cutting
cycle slowly manifest itself maybe not
to the same Quantum could you tell us
what proportion of your liabilities book
uh is uh you know what's the maturity
profile of the liabilities book and if
rates were to come off sharply what does
it do to your net interest margin sir go
on uh sir uh we have always been
maintaining your net interest margin in
the range of about 10 plus or minus half
50 basis points we always maintaining
that uh when the when there was a slight
rise in the uh uh the what should I say
the borrowing cost for us we Tred to
absorb it ourselves but when it is
beyond our control we pass it on to
customers but still we try to maintain
the 10% n if as you we all know also you
all feel that the interest rates in US
is also coming down by 100 125 basis
points and there is going to be a ripple
effect of that in uh India also when B
cost comes down it's not that our
profits will go we will pass on a good
part of that to the customer that has
been what we have been doing we try to
maintain our n if the prices if the B
cost comes down we reduce our e yield
rates
also all right hi Mr M good morning and
good to see you in happy onam and
hopefully uh you know the time to come
Prashant has been telling us as well
about onam maybe we share a meal on what
that leaf you know I'm looking forward
but let's let's focus on the business
then sir you know a couple of points
here first quarter you have grown by 10%
on a quarter to quarter basis so I think
definitely that 15% will have to get
revised upwards the quantum is debatable
but as you told us at the end of quarter
two we'll wait by for that on the cost
of borrowings you know on irrespective
of when that rate cut comes about the GC
heals has already cooled off
considerably so could you tell us what
is the average cost of boring and as of
now how much has it come down see in the
last it has not started coming down
definitely it is almost I should say it
is plattered is on the top now maybe the
cost of borrowing should be in the range
of about little less than 9 8 75 to 9 is
the cost of borrowing today I think it
is it is it is gone to speak now if you
see about a year back it was 100 basis
points 125 basis points low so it is I
should say it is almost reached speed
and we should see the rates coming down
in the days to
come just to go back to the point sir
what is the liability the majority
profile is 50% of your liability book uh
you know you know under say 6 months
maturity give us a sense of that how
quickly will you be able to as rates
come off what what will happen yeah I
think our maturity profile is about 50%
is in the bank Banks actually it is
linked to these rates so if the rates
come down if the rates goes up we don't
have a big Advantage it's only three 3
months and six months where they reset
the rates so just because the rates have
come down or goes up there's no
liabilities which is fixed it it is
always fixed to the that's a pass but
for ncds May been taken 3 years four
years Etc yes for that what we have
already borrowed will be fixed so that
should be about 20 to 25% of our book
would be in the NCD which is usually in
the range of 3 years 20 half years 3
years four years Etc which is all the
rates are fixed unlike the banks where
they have a POS they have an option to
reset after every six months or so okay
all right final question sir before we
let you go give us a guidance on
bellstar mfi you told us that maybe in
the next one year or so we could see the
listing but what is the growth you're
guiding for out there and also on your
home finance division growth on both
these two okay the home finance division
has been actually doing well we are
actually focusing very great on that the
the a is around 2,500 crores now I think
we should see good growth in the home
finance where it is almost it's a very
secured loan book as far as the uh micro
Finance is concerned as you all know it
is an unsecured book but definitely it
is Def certainly a big service which the
micro Finance industry is doing to the
customers by putting purchasing power in
their hands I think the grow there uh
the
uh the micro Finance has about 30% or
35% growth guidance is what I'm not very
sure that the company is given and
regarding the uh IPO I think we have uh
got the green signal from the uh from
the sa so we'll wait for a good
opportunity time probably the next one
year to go to the market for the IPO for
the
wstar all right uh Mr mut uh pleasure
speaking with you sir as always thank
you very much happy on him again and uh
you know we'll speak again postly
earnings uh which come out uh and
probably there'll be a revision there as
well we'll take
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