The fast growth in gold loans has got global investors attention too with Bain Capital making an offer late on Thursday evening to acquire joint control of Manappuram Finance. The above transaction has been done at Rs 236 per share and it pushed the share price of Manappuram Finance, a Thrissur-based NBFC, to a 52-week high of Rs 247.5 in early Friday trading.
This transaction has been done at nearly 1.7 times the book value of Manappuram Finance for the year ended 31 March 2024. And, the NBFC has been valued at a P/E of about 10 times estimated consolidated earnings for FY25. Its consolidated gold loan portfolio amounted to Rs 24,500 crore at the end of the December 2024 quarter, a rise of 18% on a y-o-y basis. In addition, Manappuram Finance also provides loans to small and medium enterprises (SMEs), micro finance, vehicle finance and housing finance.
Larger rival, Muthoot Finance, hit a 52-week high of Rs 2,444.6 on Thursday, and in early Friday trading it was down nearly 0.9 % to Rs 2,356.3. This Kochi-based NBFC trades at about 18 times estimated consolidated FY 25 earnings. Its standalone gold loan assets under management (AUM) amounted to Rs 92,964 crore at the end of the third quarter of FY 25, a rise of about 34 % y-o-y. Apart from gold loans, Muthoot Finance also provides loans for micro-finance and housing finance.
NBFCs held a significant 59.9 per cent share of the total gold loans disbursed by banks and NBFCs combined as of March 2024, as per various estimates.
Apart from gold loan growth, of equal importance is the net interest margin (NIM) for gold loan players like Muthoot Finance, it was 5.04 % in the December 2024 quarter vis-à-vis 7.23 % a year.
For SBI, NIM in its domestic operations was 3.15 % in the third quarter of FY 25 vis-à-vis 3.34 % a year earlier while for HDFC Bank it was 3.62 % on interest earning assets in the December 2024 quarter vis-à-vis 3.6 % a year earlier.
Change in psychology
The yellow metal has been a traditional savings avenue for Indian households with nearly 25,000 to 27,000 tonnes held in the country and valued at a few trillion dollars, as per various estimates. With the economy slowing down and employment opportunities getting harder in urban area, households are increasingly mortgaging their gold with NBFCs and banks to raise funds for business, marriages or meeting family emergencies.
This is turn has created new business opportunities for banks and NBFCs with new loan customers being increasingly acquired digitally along with online loan repayment options.
The rapid growth in gold loans has not gone unnoticed by the RBI, and the central bank had raised concerns in September 2024 and urged supervised entities to review their policies, processes and practices for gold loans.
Growth outlook
Manappuram Finance would be looking to bring global best practices from Bain Capital’s portfolio. Manappuram Finance has also got approval from its board in February 2025 to raise upto $ 2 billion dollars (nearly Rs 17, 000 crore) via issue of foreign currency denominated bonds in one or more tranches.
The above development comes at a time when both the recent Union budget and the cut in repo rates by the RBI are aimed at reviving growth in the economy and loan demand for the broader banking and NBFC sector.
Leading private sector banks like HDFC Bank trade at close to 20 times estimated standalone FY 25 earnings. This could suggest that for gold lending NBFCs to be more attractive from a long-term basis, it may be worthwhile to wait for cheaper valuations.
Amriteshwar Mathur is a financial journalist with over 20 years of experience.
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