George Alexander Muthoot, Managing Director of Muthoot Finance, on August 23 said that the initial public offering (IPO) of its subsidiary Belstar Microfinance is expected within the next year.

Though the IPO is on the cards, Muthoot noted that there is no immediate rush as Belstar is a full-owned subsidiary of Muthoot Finance, which has sufficient capital to support it even if the IPO is delayed.

Muthoot’s gold loan business grew 11% in the first quarter and sees continued momentum. In the first quarter of FY25, the company’s net profit surged by around 11% to ₹1,079 crore.

The current market capitalisation of the company is ₹76,474.86 crore.

Here’s the full Q&A transcript of George Alexander Muthoot’s interview with CNBC-TV18

Q: While growth has been phenomenal, tell us how much of that is organic growth and how much is the impact, because some of your rivals are dealing with regulatory issues. Also, the bigger question the market has is about the deterioration in asset quality because at the end of the first quarter, gross non-performing assets (GNPA) is now reaching almost 4%, quite a bit of that is because of the microfinance institution (MFI) business. For Belstar MFI, the gross NPA level has moved to 2.36 versus 1.62 in the previous quarter. What’s happening with asset quality. Is it only MFI? Is it elsewhere? And what can you guide on this?

A: We are both on the same track. When we say growth is there, we have seen good growth in the assets under management (AUM) in gold loan business. The gold loan growth has been quite good. In the first quarter, there was a growth of 11% in the gold loan business alone so that should be a good growth.

We see continued momentum on that in the coming months. So, we are on track for a good performance this year.

There are some concerns relating the asset quality, the 3.99 gross NPA – 99% is on the gold loans business. Because gold loan constitutes about ₹80,000 crore, the MFI is only ₹10,000 crore, and the deterioration the asset quality in the MFI is only 0.3% or 0.4% it’s insignificant.

Coming to gold loan, when we see the asset quality, we looked at the numbers here and the amounts of the NPA gold loan, the loan to value is only 54%. So we are fully in the money, even if you include the interest. And not even a rupee of that will be lost.

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It is just that we give more time to the customer to repay the loan instead of auctioning auction. The auctioning option for us is when it becomes an NPA, because after 90 days or one year, it becomes an NPA. So we are helping the customer, supporting the customer and probably giving him some more time. So if you give three or four months’ time, many of them will come and take back. These loans are not old loans. These are all changing. So every time you see the NPA number is a new number. What you see as NPA now, after three months, it becomes close. It is just that we are supporting the customer.

Q: Understood your point. But I must ask you a little more on this. Is there no rise in provisions?

A: This is standard asset provision, because the loan growth has also been ₹8000 crore this year. This is standard asset provision.

Q: So the question is, why is this happening? Where is the stress wire is? Why is there a delay or default in payments? And you said you’re willing to handhold for a couple of months. By when do you expect the situation to start stabilizing? Or when will you take the call to start auctioning? I am just trying to understand why this is happening at a behavioral, granular level. And by when will you either start auctioning, or expect repayments. So when should we expect an improvement on asset quality?

A: The asset quality has not changed. It is only the NPA, the technique. These are technical NPAs, the asset quality is still good, 110% good. So there is nothing wrong with the asset quality.

It’s only that we are giving more time. We would like to support the customer, and why do people insist that we should auction the gold quickly? Customers’ gold, all these ornaments are a lifelong savings of the people. So we have been giving them time. We have never faced any problem with that.

At any time we want, we can auction all the gold and we will have to refund the money to the customer because we have too much of collateral. So if you get ₹100 and the total dues is only ₹90, we have to return ₹10, and the customer will ask, why did you auction my gold? You could have given me little more time. That is exactly what we are doing.

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That is why customers take a gold load. They get little more time, which is not the case in an EMI loan. So when they have some issues or cash flow problems, that is when they take a gold load. And we give them more time. Take three months, four months, five months after that, they’ll come and take. Even then if they don’t take, we will auction.

Q: We understand the thought process, what is a level of gross NPA that you are targeting by the end of the year?

A: NPA is never a problem. We can go even up to 5% but then we will try to maintain this at least 3-4% itself. That’s what you would like to meet. It is not in our heart to auction the goal.

Q: Just want to get back to the point about growth now. So you are saying in Q1 you had an 11% quarter on quarter (QoQ) revenue growth and 25% on a year on year (YoY) basis. You’re saying growth rates have continued in July and August. So for the full year, do you think we can anticipate a 20% kind of an AUM growth? And secondly, you’ve been on record with some of the investors saying competition has come down in the market. So could you elaborate on that?

A: We have been always giving guidance for 15% growth over the last 7-8 years, we have always been giving guidance for 15%. Quite often we are able to do much better.

About the revision in the guidance – probably next quarter, after Q2 results, we will think of giving a revision in the guidance. So we don’t want to revise the guidance now, just after one quarter. After Q2, we will revise the guidance, seeing how things are moving in the second quarter or so.

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Competition – yes, I have also been seeing very aggressive growth of banks, especially public sector undertaking (PSU) banks, etc, in gold loans. They are still growing, but they are not as aggressive as they were three four months back, or two quarters back.

Q: Let’s talk about the net interest margins (NIMs). You had indicated that, in fact, the cost of borrowing will go up a little bit. So in Q2 in comparison to Q1, how much will the cost of borrowing go up? And what does it mean for your NIMs?

A: So we will try to maintain the NIMs. The NIMs we have is about 10% plus or minus maybe half a percent. We will maintain that NIMs. But if the borrowing cost is going up – maybe some of the borrowing cost, if it is very minor, we will absorb it. If it is going up higher, then we will pass it on to the customer. Because if a customer borrows from any other place, if the interest is going up, he wouldn’t mind paying us also high interest. So we will try to absorb it as far as possible, and then maybe, if it is not within our reach, we will pass it on to the customer. But we will maintain the NIMs at the present day.

Q: It was around 11.5% in the first quarter, you’ll maintain it at those levels, right?

A: Yes.

Q: Let’s focus on the smaller part of your business, which is the MFI business. Belstar IPO – that’s something the Street has been looking forward to. Is it on the cards? Sometime in this year?

A: Still on the cards. We are not in that much of a hurry, though, because it is 100% subsidy of Muthoot Finance and we have sufficient capital in Muthoot itself to support – even if the IPO is delayed. So we will wait for the IPO – probably in the next one year we should be able to do it.

Q: What about the asset quality out there? That deteriorated a little bit and your AUM declined as well. So for this part of the business, which is only 10% of your total AUM, what’s the outlook on both these two parameters? AUM growth as well as asset quality?

A: Last year was quite good for AUM. Now everybody is in a consolidation mode, collections, recoveries, etc. Not only Belstar, all the other microfinance are in the collection mode. So that must have been one of the reasons the AUM has not grown.

But then the asset quality compared to other peers in the market, everybody has had a deterioration in the asset quality, the NPA, and I think it’s the same with the Belstar also nothing different from any other microfinance. On the top five MFIs, our NPA levels are much better than many others.

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