'The RBI has always been saying that banks have lent Rs 50,000 crore, Rs 75,000 crore or Rs 1 trillion to the NBFC sector, but you should also look at where this money is actually going. You will realise that a good part of this money is going in to government-owned NBFCs or finance corporations -- they are getting the maximum funding.'
Muthoot Finance feels it is in a sweet spot.
The gold-loan financier has just raised $450 million in debt from the international markets, and Rs 800 crore via non-convertible debentures.
The company's managing director, George Alexander Muthoot, spoke to Nidhi Rai on his loan book growth, going ahead, even as he feels banks should lend more to non-banking financial companies.
What kind of loan growth are you looking at?
We have given a guidance of 15 per cent growth in gold loans this year.
The second quarter has not been good, but I think in the coming quarters, we will be able to achieve it, or do better.
The average cost of bank borrowing a year ago was 8.5 per cent, but it has gone up in the last one year.
This unfortunately has not started coming down as yet although it is not going up now.
The availability of funds is better now, but the costs will stabilise only over three months.
It should start coming down slowly.
What is the source of your funding?
We have working capital coming in from banks, and non-convertible debentures (NCDs).
In the last one year, the rate of interest on NCDs has gone up.
We concluded an NCD issue last week of Rs 800 crore and that also came in at an average cost of about 9.5 per cent; a year ago, it was 8 per cent.
Another source of funding is commercial papers, and it is usually priced in the range of 6-6.5 per cent.
In October last year, after the crisis at the Infrastructure Leasing & Financial Services Financial Services, it went up to 9 per cent, but it is back to about 6 per cent.
You mentioned the growth outlook for FY20 at 15 per cent. What is the outlook for FY21 keeping liquidity and other aspects in mind?
There is a minimum demand of 15 per cent for gold loans, and I think we should be able to achieve it.
The availability of funds is good for companies like Muthoot Finance.
We recently went to the international markets and raised $450 million.
So, we are using that as well to fund our growth.
Keeping gold prices in view, what kind of businesses are you looking at?
The price of gold does not determine our funding requirements or loan disbursals.
The price of gold is just a factor; it is a base on which we give a loan at a maximum of 75 per cent of that day's gold price.
So that's the only role of the price of gold.
There is a lot of gold in the country, and only about 100 or 200 tonnes comes into the market while the rest is still lying idle.
Do you see green shoots in the non-banking financial companies (NBFCs) sector?
We see very good opportunities because banks and other NBFCs are a little sceptical.
They are not lending freely on unsecured loans compared to loans with a gold ornament as security.
There are always lenders which like to grow the gold-loan portfolio rather than other portfolios.
And we see a 15 per cent growth, going forward.
We don't see any immediate challenge on the funding side.
We have started to use one more option for funding -- external commercial borrowings.
But as far as other NBFCs are concerned, they will continue to face challenges because they have to demonstrate the quality of their portfolio, liquidity, and an improvement in asset-liability management.
Only then will funding start coming in.
How do you look at the central bank's measures for NBFCs?
The Reserve Bank of India (RBI) has tried to nudge banks to reduce their lending rates.
They have cut key rates, but it has not translated into a reduction in bank lending rates.
The RBI has always been saying that banks have lent Rs 50,000 crore, Rs 75,000 crore or Rs 1 trillion to the NBFC sector, but you should also look at where this money is actually going.
You will realise that a good part of this money is going in to government-owned NBFCs or finance corporations -- they are getting the maximum funding.
Then, it goes to the highly-rated NBFCs, but the average or the just about good NBFCs, are not getting sufficient funding from banks.
Bankers are not ready to take risks.
What are your expectations from the Budget?
The gold loan sector is a little misunderstood.
People feel this is going towards just consumption which is not correct.
People are taking money for bridge-finance, and most of it is towards small finance, productive activities.
The government should see gold loan finance companies as doing a service to the economy.
With respect to our company, I do not think we need any new initiatives.
I think the government should start spending more on projects so that money will start flowing into the economy.
They should support housing, infrastructure and start releasing payments.