Rise in NPA is transitory, as borrowers take time to adjust to new rules, says Muthoot Finance MD

KOLKATA: India's largest gold loan company Muthoot Finance said that the rise in bad loans is an outcome of the structural changes in lending rules and is not a reflection of stress.

"Borrowers will take a little while to understand the new structure. This does not signify any stress in the industry," managing director Alexander George Muthoot said.

"It is only a transition phase where people have to just get used to this kind of a new way of servicing the loan which was not there in the past. The payment will be regularised over a few quarters," he added.


Muthoot reported a sharp rise in its gross non-performing assets ratio to 3.87% at the end of September from 2.28% three months prior.

Among other non-bank lenders, Bajaj Finance reported rise in stage 2 and 3 assets to 2.02% from 1.87% three months back and attributed this to the transitional phase while saying that it won't impact its credit cost. Shriram Finance too saw its gross stage 3 gold loan assets rising to 3.12% from 2.57% over the same period.

The Reserve Bank of India told lenders across the spectrum to switch to equated monthly instalments or interest only monthly payments if loans are given for more than 12 months. Bullet repayment loans where principal and interest are paid in lump sum at the end of the tenure are capped for a maximum one year period. No automatic rollover of loans is possible anymore for loans up to one year maturity. The new rules became effective from April 1.

"It's too early to make an assessment on the new regulation. Let's see how things progress, probably it will lead to better credit discipline," said Muthoot's new MD, who assumed the leadership role on October 1.

He highlighted that the company maintains an average loan to value ratio at 65% and therefore the lender always has the buffer in case the borrowers fail to repay after a certain time.

"If we have to remove NPAs, we can easily auction this gold, recover our principal and interest. But we always ensure that we use auctions as a last resort when everything else fails. About 98% of our customers pay their interest on time," the MD said.

Meanwhile, taking the advantage of easy branch opening norms, Muthoot with 5230 branches across India has accelerated the pace of physical expansion. It opened 262 branches in the first six month of the fiscal and plans to add a similar count by the end of March.

RBI said that large gold-loan companies do not need to take prior approval before opening new branches.

It had 204 ton of pledged gold at the end of September, up from 196 ton six month prior. Its assets under management grew 42% year-on-year to Rs 1.88 lakh crore, of which gold loan was Rs 1.79 lakh crore.

Indians are estimated to have monetised 1500-2000 tons of gold while a Morgan Stanley report in 2025 estimated the total household wealth in gold at around 34,600 ton.