The Muthoot Group began operations 126 years ago and today has 15 other lines of business outside of financial services. At the helm is the group’s chairman, Mr. G. George Muthoot, who took over the role in 1993. Since then, in addition to diversifying its activities, the number of branches has grown from around 31 to over 4,400 in actual hour. He has a different nomenclature for the product for which the group is best known, the gold loan, which he calls “easy secured loan“. group banking service plans.
How do you see the new regulations, particularly concerning non-bank financial corporations (NBFC)?
I think it’s a very good decision, especially for the NBFC. He took a positive side rather than a negative side, which some of the previous circulations had done; they were not at all encouraging. As soon as the LTV (loan-to-value) is 75% achieved, it means a level playing field for everyone involved. It is very unreasonable to keep it at 60% for us and 75% for the banks. I appreciate the quick action of the new Governor (Reserve Bank of India) and the Nachiket Mor committee. Do you think the rules for NBFCs are relaxed?
In terms of LTV, which was one of our biggest bottlenecks, it has certainly been eased. The difference in LTV meant that people would turn to banks, especially new generation private sector banks, as they are comparatively more efficient. Over the past 73 years, and even more over the past 20 years, we have eliminated many loan sharks who were charging maybe 10% interest per month. Since the procedures of the banks discouraged many people from looking for loans, they used to go to these pawn shops. It was very bad for the economy and the poor.
How is the gold lending industry doing, especially in rural areas of the country?
I call gold loans âeasy to secureâ loans, and it works very well. Tell me about one person in India who doesn’t have a little gold coin. India holds the largest reserve of gold in private and household savings. And at Muthoot, we have the largest reserve of gold after the Reserve Bank of India. We protect this asset very carefully because public opinion is attached to it.
Has the fall in the value of gold affected overall activity?
Even if the international or Indian market goes down, we provide temporary loans. We have a control button in our head office to ask all offices to reduce the percentage of loan granted for one gram of gold. It (the drop in the price of gold) does not affect us directly because he is a big jeweler who keeps large stocks since we do not sell or buy gold. Our risk is very limited. The only thing that is affected is that the amount disbursed is reduced. If you look at prices historically, no other asset has appreciated like gold and is as safe as gold. Southeast Asia, China, India, people here love gold and want to keep at least a little with themselves.
What if that love fades away?
Shlokas were written thousands of years ago, but they are still true. Has the equation changed over the years? No. Likewise, the love of gold is not lost suddenly. And even if it does, we can change our business model. We have 16 lines of business and we can start to focus on them. Maybe that’s why we started to diversify 30 years ago. But unlike many other companies, we will not expand and focus on existing verticals. We believe that we will grow and that we will grow with the people.
Many companies, including yours, issue non-convertible debentures (NCDs). Why?
As an industry, NTMs are more secure and have many controls. You don’t get an authorization like that – you need all the certifications from the banks; you should have credibility; and you are controlled by the regulators. In our case, this is very safe as every 100 crore raised is backed by 140 crore of gold loans, which in my opinion is unprecedented.
But many retail investors don’t know them and don’t see the underlying risk. It is only the high rate of return that attracts them.
People just don’t pay because the return percentages are high. This lesson was learned: Many were offering 16-18% returns, and they all went out of business. Apart from that, these NTMs are rated by agencies that look at the underlying fundamentals. I think people are also getting smarter when it comes to investing and looking at fundamentals and balance sheets.
You also applied for a banking license. What makes you confident to get one?
We already have more than 4,400 branches ready to be banked. The regulations require 25% of businesses in rural areas and we already have 70%. We have the infrastructure ready and we are already a publicly traded company. Apart from that, we have a license for 9,000 white label ATMs (ATMs). So if the regulations are favorable, we are ready to launch banking services.
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