India's gold loan market has huge potential, there's lot of idle metal: George Alexander Muthoot

India's largest gold loan company, Muthoot Finance recorded 95% annual rise in net profit to Rs 10,134 crore backed by a 50% rise in assets under management to Rs 1.63 lakh crore. Managing director George Alexander Muthoot tells Atmadip Ray that he expects this momentum to continue this fiscal amid the evolving geopolitical situation and India's decision to raise the import duty on gold. Edited excerpts.

What is the main growth driver?
The main driver is the demand for gold. It's increasingly becoming difficult to get unsecured loans and therefore this is a natural shift towards gold loans. The traction automatically translates into higher profit. Secondly, we have around 4,900 branches and each branch business rose to Rs 30 crore from Rs 20 crore a year back. This means our operating cost has come down, leading to higher profitability.


Do you expect this momentum to continue?
India's gold loan market has a huge potential. About 25,000 tonnes of gold or gold jewellery is lying with Indian households. Out of it, about 5,000 tonnes are being pledged. If all this idle gold comes into the financial system, what would be the growth opportunity!

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Will the rise of import duty on gold impact the gold loan market?
The rise in prices will add to the growth momentum as it will give more borrowing power to those who are pledging gold. The uncertainties will not change the course of the gold loan market. And the price fluctuation won't matter since there is enough cushion. While disbursing loans, the loan to value (LTV) ratio is 75% but the ratio comes down when price increases. Over the last two years, the gold price have risen although recently a small correction has happened from the high.

Does the price correction, at any time, raise alarm regarding a potential margin call?
Gold loans are short-tenure loans so such a situation rarely arises. If it happens, we can auction the pledged gold. For the last two years, the auction of pledged gold was minimal. Generally, customers do not abandon their gold, even if there's a price correction since he has paid another 20% extra as making charge for the ornament. That is the reason we finance only household gold ornaments and not finance gold bullion as it does not have an emotional value.On the other hand, if the customer did not have intention to repay the gold, he would have gone to any jeweller and sold the gold documents to get a hundred percent value.

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What will be the impact of revised gold loan rules which are effective from April 1?
It will be good for smaller borrowers. NBFCs are now permitted to lend up to 85% of the gold value on Rs 2.5 lakh loan. This will help small borrowers with limited quantities of gold.

What is AUM growth guidance for FY27?
We always give 15% growth guidance in the first quarter. Then we revise it as the year progresses. Last year also we initially gave a 15% guidance and later revised it upwards.