Muthoot Finance, which reported a 43% jump in its standalone Q4 profit, driven by a strong growth in gold loan portfolio, is maintaining a conservative growth outlook for FY26. Managing director George Alexander Muthoot speaks to Narayanan V about gold loan AUM growth, the impact of RBI’s draft norms on gold-lending NBFCs and challenges in the microfinance arm. Excerpts:
Despite over 40% growth in gold loan AUM in FY25, why has the FY26 guidance been set at 15%?
We haven’t lowered the guidance. It’s simply our practice to give 15% growth guidance every year, but we end up achieving much higher. Last year, for instance, we guided 15% but achieved 41%. We prefer to maintain a conservative stance, but if needed, we may revise the guidance after the second quarter of this fiscal.
How do you see the impact of RBI’s draft guidelines on gold lending.
Most of the points in the draft are procedural, which is very good for new entrants. Banks, which were not focusing on this segment, are now taking it more seriously. But gold loan processes are quite exhaustive and many new entrants aren’t fully aware of them. The positive aspect of the draft is its focus on harmonising lending practices. Established gold-loan NBFCs like us have already been following them. What the RBI has done is simply unify all the processes and consolidate them in one circular.
Secondly, gold prices have gone up by over 50% in the last one year. This has raised some concerns, and the regulator doesn’t want any stress building up in this space. So, it is tweaking the loan-to-value (LTV) norms. But if NBFCs are restricted through these changes, it could push customers back to unorganised moneylenders ― which is not in the interest of the country or the regulator. It has taken 20–30 years of effort by NBFCs like Muthoot to bring customers out of the clutches of the unorganised sector. We risk losing all that progress if they are forced back to moneylenders.
So, we have submitted our views and suggestions. Probably, the RBI will call us and we will explain our stand. Also, if a customer is pledging gold, it means she wants to get it back. Customers are getting only 75% of its value. If they had no intention of reclaiming it, they could have sold it and gotten even 99%. By not selling their gold, they’ve benefited from more than 40% rise in its value over the past year, and we’re helping them preserve that value.
That said, despite the rally in gold prices, our LTV ratio is around 62–63%, so there is still a healthy margin.
Your standalone net profit jumped 43% in Q4, but at the consolidated level, the growth was 22%. The reason behind the difference?
Some of the businesses included in consolidated results are not making money. Our consolidated performance includes subsidiaries like Muthoot Homefin, Belstar Microfinance and Muthoot Insurance Brokers. Our microfinance arm Belstar has not made any money this year. Despite the challenges, we posted a profit after tax of ₹46 crore and maintained gross stage-3 assets at 4.98%, which is in line with peers.
Has the Tamil Nadu Money Lenders Bill impacted your microfinance subsidiary?
Both the Tamil Nadu Bill and the Karnataka Bills have exempted regulated entities. But the real challenge is at the ground level ― people won’t distinguish between regulated and unregulated lenders. So, there can be confusions initially with regard to collections. It will take one or two quarters for things to stabilise.
Your NIM guidance given the anticipated rate cuts?
We have consistently been maintaining our spread and NIM. The NIM should be around 11% and the spread in the range of 9–9.5%. Over the last four-five quarters, our spread has been around 9.5%, and we have managed to keep it steady.
If cost of funds goes up, we typically absorb it for a quarter. If the increase persists, we raise our yield to maintain the spread. Currently, the cost of funds is coming down slightly, but it will take a few months to stabilise. Whenever there’s a benefit in borrowing cost, we pass it on to customers.