According to the CEO, Muthoot Fincorp intends to reduce its gold loan book by 30–40% in three to four years

Right now, gold loans account for 99% of the company's book value. The goal of reducing the portfolio of gold loans is to diversify, according to Muthoot Fincorp CEO Shaji Varghese. In the next 18 to 24 months, the firm does not have any plans to go public, he added.

The Reserve Bank of India (RBI) has pressed for regulatory steps against a few providers of gold loans in the last few months. Varghese said that Muthoot Fincorp does not see any influence from the regulatory direction, which is for the sector's empowerment.

CEO Shaji Varghese of Muthoot Fincorp, the parent firm of the Muthoot Pappachan Group, says the business intends to reduce its gold loan book by 30–40% in the next three to four years.

Varghese said in a conversation with Moneycontrol that 99 percent of the company's book at this time involves gold loans. Approximately 99 percent of our book is now secured by gold loans. In addition, we are developing additional companies. We want to reduce the gold business by at least 20 percent in the next two years, and maybe by as much as 30 to 40 percent in the years that follow, according to Varghese.

This is a component of a corporate diversification plan into new markets. "We have some business in mortgage, loan against property, small and medium enterprises, as well as will soon start channel financing," Varghese said. "Our focus will remain on gold."

After reporting a net profit of Rs 141 crore in Q4FY24, the non-banking financial corporation (NBFC) that is not listed and focuses on gold loans posted a net profit of Rs 239 crore in Q4FY24. According to Varghese, the lender's entire loan book surpassed Rs 50,000 crore for the first time in FY24. The company's payouts increased from Rs 43,443 crore to Rs 50,167 crore in the prior year, a 15% YoY increase.

Bank rivalry for gold loans

Many banks have rapidly increased the amount of gold loans they have in their portfolio in recent years.

The most recent financial reports from a few of the banks that lend a lot of gold indicated that their portfolios had seen strong growth. Gold loans make up a significant portion of CSB Bank's overall book, and the bank recorded YoY increase of 22%.

From Rs 9,694 crore to Rs 11,818 crore last year, the lender's book increased. Another significant participant is South Indian Bank, whose gold loan business increased by 12% year over year to Rs 15,513 crore. With its overall gold loan book increasing to Rs 25,226 crore from Rs 19,841 crore the previous year, Federal Bank claimed a 27 percent gain.

Traditional gold loan providers are under fierce competition as a result of banks' rapid expansion. In a research released on January 4, CRISIL said that despite fierce competition from banks, the market share of non-bank financial companies (NBFCs) offering gold loans exceeded 60% between March 2021 and September 2023.

"Gold-loan NBFCs have bolstered clientele as well as managed growth by opening branches in new geographies, offering online gold loans as well as door-step services, and deploying advertising techniques to target inactive customers," said Malvika Bhotika, Manager of CRISIL Ratings.

against the RBI's actions against lenders of gold loans

The Reserve Bank of India (RBI) has pressed for regulatory steps against a number of the lenders of gold loans in the last few months. IIFL Finance was prohibited by RBI on March 4, 2024, from approving and paying out new gold loans due to "material supervisory concerns intended to protect the interests of customers with immediate effect."

After restricting IIFL Finance's gold lending business for breaking the Income-Tax regulations on cash disbursal, the RBI issued an advice to a few NBFCs on May 8th, requiring them to closely follow these guidelines.

It said that loan amounts beyond Rs 20,000 cannot be disbursed by NBFCs in cash. The next day, shares of some of the most established providers of gold loans, like Manappuram Finance and Muthoot Finance, dropped by about 8%.

Varghese said that Muthoot Fincorp does not see any influence from the regulatory direction, which is for the sector's empowerment. Varghese said, "We see no issues around the regulations whereas we have a rich legacy of 130 years in the business."

Plans to generate funds in FY25

According to Varghese, the firm is still searching for finance alternatives from banks and non-convertible debentures (NCDs). Banks account for around 71% of liabilities today; other sources, such as NCDs, account for the remaining amounts. There are other sources of liability for us.We have the choice and chance to co-lend," Varghese said.

Varghese said about equity capital that the firm does not intend to go public in the next 18 to 24 months. "There is no doubt that an IPO is imminent, but no precise plan, project team, or date has been set." Therefore, we don't currently anticipate that occurring for another 18 to 24 months," Varghese said.