Muthoot Finance soars 65% on easier provisioning norms

Kerala-based Muthoot Finance, which is into gold loans, has seen its stock run up 65% over the past two months on the back of easing of provisioning norms for gold loans and rising bullion prices. Besides, the government doesn't appear to be in a hurry to reduce the import duty on gold, which will lower the yellow metal's value locally.

A revision in RBI norms in early January 2014 allowed the company to offer up to 75% of value of gold as loan from 60% earlier.

“We will be able to offer over . 2,100 as loan per gram of gold, from Rs 1,800 earlier,” George Alexander Muthoot, managing director, told ET. According to him, this coupled with rising gold prices should help the company achieve a loan growth of over 15% in FY15.

Domestic gold prices have jumped close to 20% in the past six months to over Rs 3,000 per gram, which boosts the company's ability to lend. A higher loan-to-value ratio and higher gold prices mean the company can extend more loan per gram of gold.

The company’s growth in the past five years petered out in the last 12 months as RBI introduced a 60% cap on the loan-to-value ratio. The cumulative annualised growth rate of over 70% over the previous five years in operating income as well net profit turned negative. The loan portfolio contracted 12.3% from Rs 25,388 crore at the end of December 2012 to Rs 22,263 crore at end of December 2013.

Muthoot Finance has entered the business of 'white label ATMs' – automated teller machines that treat all banks' debit and credit cards at par. It also plans to enter the insurance sector, besides home finance.