George Alexander Muthoot, Managing Director, Muthoot Finance, talks about the reason for putting the stock split plan in abeyance, the inclusion of banks in gold loan segment and loan to value (LTV) ratio among others during an interview with Anil Singhvi, Managing Editor, Zee Business. Edited Excerpts:

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Q: You have decided to put in abeyance the proposal for the stock split in a view of the current economic situation to a future date. So, I have to understand how the economy and stock split are connected? Do you feel that a decision of stock split will be taken when the prices move to 1,500 to 2,000 levels as your stock prices are likely to go up?

A: It is not so we just decided on it. However, the problem of coronavirus is running at present. We just felt that this is not a good time and it can be done on the later stage. Thus there is no need to rush or do it quickly. 

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 Q: RBI has asked many PSU banks to offer gold loans to retail customers and I have seen several Ads by SBI and many other banks, like Federal Bank and Karnataka Bank. Do you think that competition will increase with their entrance?

A: We have faced such competition in the past as well. I think, the same things happened some 10-12 years ago when all the banks and NBFCs have entered into gold loans. But this happens only in the focused and serious place. A company like Muthoot has an entire focus on gold loans and our entire branch and every staff – we have around 25,000 staffs – are working on gold loan. So, the company that will focus on the domain will only emerge as the long-term player. Secondly, the advertisements on gold loans by big banks, like the State Bank of India among others, will increase the market size of gold loan, i.e. only 2,000 tonnes of gold is present in the gold loan market, while at least 25,000 tonnes of gold is available with the public. This means, 80% gold hasn’t reached to the gold loan market yet but is supposed to reach here. If the banks are advertising for the same and asking to opt for gold loans then it is good as it will increase the market size. If the market will increase then definitely Muthoot will be benefited by it.

Q: What is your loan to value (LTV) ratio right now as I came to know that the RBI has raised it from 75% to 85% and has recalled it to 75% again?

A: You have heard wrong because as per the regulation of the Reserve Bank of India, you cannot go beyond 75%. On average everyone doesn’t take 75% as there are people who opt for 70 and 65 and our average stands below 70. However, the price of gold has increased, so the loan to value of the loans that were given earlier has gone down to 53%-54%. It has helped in increasing our margins.  

Q: How much loan to value has been allowed by the RBI?

A: The limit has been set at 75% for the banks as well as NBFCs.

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Q: The NBFCs are not able to raise money at an ease, for last some time. So are you able to raise the funds, if yes, then what is the rate at which you are raising the funds?

A: NBFCs can raise money from 3-4 places, it includes (i) owned fund – we have our net worth of Rs 12,000 crore, (ii) banks, who sanction loans to us, (iii) domestic Non-convertible debentures(NCDs) and external NCDs and (iv) commercial papers. All these rates have come down in last one month, and we have raised much amount through NCDs and have also received funds from Bank’s targeted long-term repo operations (TLTRO). These funds were raised at 1 per cent, i.e. 100 basis points, lower rates in the last month at an ease.