Lending practices likely to continue with Muthoot, Manappuram Finance own book lending

Lending practices likely to continue with Muthoot, Manappuram Finance own book lending

Not likely to go for co-lending given their adequate access to capital: Report

In FY22, not only was there high competition, but the demand for gold loans in the segment with low ticket size was also low.

As per the ICICI Securities report, Muthoot Finance and Manappuram Finance are likely to continue with their book lending (against co-lending practices initiated by some peers) and higher yield/s than lower yields in FY22. Prefer less ticket size buckets. ,

This is despite an improvement in demand or an improvement in competitive intensity.

RBI may allow SFBs to co-loan with NBFCs as part of its liberalization measures

After an initial stabilization period of five years, and post review, the RBI said it may liberalize the scope of activities of SFB Muthoot Finance to raise ₹300 crore through the 28th issue of NCDs.

How co-lending can help the banking sector

As a result, Muthoot/Manappuram had to revise the returns and ticket size with respect to the target segments.

For instance, the AUM (assets under management) yield of Muthoot/Manappuram declined from 21.7%/25.6% in FY12 to 19.5%/21% respectively in FY12, the report said.

In addition, the higher ticket size ratio to AUM also increased as teaser schemes with extremely low ratings were introduced to attract such customers. Analysts said this can be seen in the ratio of 33 per cent of ticket size AUM to over Rs 2 lakh in FY12, compared to 19 per cent in FY2011 for Manappuram.

However, this experiment has provided substantial evidence that such growth for profitability is sub-optimal in results (return on equity fell to 23.5%/17.6% in FY12 from Muthoot/Manappuram in FY2011) 27.8% / 27.7%), they added.

As a strategy, analysts expect Muthoot/Manappuram to return to their core segments, which should automatically lift the yield irrespective of an improvement in demand or competitive intensification.

The report assessed that Muthoot's debt to equity and cash and bank balance stood at 2.5 times and 9 per cent, respectively, as of June 22. For Manappuram, they were 2.3 times and 6.5 per cent as on March 22.

“Co-lending solves one problem – the supply of capital, but Muthoot and Manappuram have substantial access to it.

“Therefore, they will first look to deploy it adequately and increase leverage. This should ideally help them generate higher absolute profit after tax and ultimately ROE especially considering that further returns are expected to improve. There is hope, ”said the analysts.