Muthoot Finance net grows 7%

Muthoot's total income rose 11 per cent to Rs 1,365 crore, while capital adequacy ratio was at 19.5%

Gold loan non-banking finance company (NBFC) Muthoot Finance reported marginal growth in net profit of Rs 270 crore for the quarter ended December. This is seven per cent higher than the same period of the previous year due to muted business growth. Its total income rose 11 per cent to Rs 1,365 crore, while capital adequacy ratio was at 19.5 per cent, compared to 18.33 a year ago.

The company’s assets under management (AUM) increased by Rs 1,969 crore in the third quarter to Rs 25,712 crore. Gross non-performing assets (NPAs) were at 0.021 per cent as against 0.020 per cent at the end of nine months.

“Our business has not grown for last two quarters and the AUM is stagnant from last two quarters and we can’t expect growth in profit without AUM,” said George Alexander Muthoot, managing director, on the flat growth in net profits.

Muthoot’s AUM fell by Rs 1,337 crore in the first quarter immediately after the Reserve Bank of India (RBI) had announced curbs on loan to value ratio (LTV), and the AUM grew by just about Rs 400 crore in the second quarter. Therefore, on a net level, the company’s AUM grew just by Rs 227 crore in the nine months ended December 2012.

Gold loan companies are facing the pressure this year on their profitability on account of RBI’s measures to curb LTV at 60 per cent and taking out the loans to these companies out of priority sector lending for banks that has resulted in higher cost of funds for these firms.

The RBI had established a committee under K U B Rao to study the impact of gold imports on the economy of the country and to understand the systemic risk to the financial sector by these companies. The Committee, though, stated there is no systemic risk from the gold loan firms, but suggested a few ways such as standardisation of the value of the gold, while deciding the loan which will curb the companies’ freedom to decide the value. Increasing of loan to value to 75 per cent will actually bring down the lending capacity of these companies marginally from current levels, the committee’s report said.

This has forced the NBFCs to revise their growth targets. “We plan to grow our AUM by 10 per cent and profit rise in the same proportion. From next year, we should be able to grow in the range of 25-30 per cent,” said Muthoot. Gold loan firms were growing at the staggering rate of 50-60 per cent annually, which prompted the RBI to look into the functioning of these companies.

Muthoot Finance also obtained approval of shareholders to raise the public shareholding limit to 25 per cent to comply with Securities and Exchange Board of India’s (Sebi) minimum public shareholding norm of 25 per cent by May 2014. “We’ll we place our feedback on K U B Rao committee report with the RBI in the next two-three days, Muthoot said, speaking about the suggested norms.

Total gold holding (pledged) with Muthoot Finance remained at the same level as of last year at 132 tonnes at the end December.