How have the Q2 margins shaped up? Also your NII has dropped by a good 5%. What has led to this kind of a fall?
Business AUM has grown in this quarter and consolidated business is about Rs 35,000 crore now. Standalone gold loans is Rs 32,000 crore. These two are historic peaks for the company as far as AUM is concerned. We have made Rs 480 crore profit in this quarter which is also fairly good in relation to all the happening in the markets today.
How have the margins panned out for the second quarter?
Today the yield is about 21% and our net interest margin is in the range of 11%. We have been getting that continuously. But having said that, last year this quarter, our yield was about 23% plus because there were some old six months loans which got closed in that time. That is a one-off high yield and even at that time we had said that it will come down to the normal level and 21% is the normal yield which we have. We hope to continue that going forward also.
The recent troubles in NBFCs have generated a lot of discussion. Do you think there is a need for tighter regulations in the first place and how do you see these developments affecting your company and your sector as a whole?
In the last two months, I, along with my CFO, had gone and met most of the banks which had been funding us and also the major mutual funds which have been supporting us in the last few years.
They were definitely able to understand the strength of a gold loan company. A gold loan company has never any ALM mismatch or ALM problem because our loans are generally given for a year. These loans tend to get closed in three to four months. So every month, we get a collection of about Rs 5000 crore and we disburse Rs 5000 crore or a little more and that is why the AUM grows.
There is a very quick turnover for this and if necessary, we can always get cash very quickly. That is the beauty of a gold loan company. Of course people used to say you have a problem there because most of your assets get fully turned in four months. But we have been able to maintain the AUM also.
As far as ALM for a gold loan company is concerned, there is absolutely no issue because we get the collections very quickly as there are no EMIs and loans usually get closed in four-five months on an average.
These banks and mutual funds were able to understand and know that there is absolutely no issue with NBFCs. But as far as the total NBFC sector is concerned, banks have a total sectoral exposure limit for NBFCs etc. They had some issues because we are also treated as NBFC.
Also the liquidity freeze has resulted in higher cost of funds. Do you see this impacting your profitability or net interest margins going forward?
Yes, we see incremental borrowings both from the CP as well as in the banks, we see a one per cent hike in cost. But since our gold loans are for very small amounts with average ticket sizes of only about Rs 30,000, the customers are not very interest sensitive.
Thirdly, among the gold loan NBFCs, we are considered the most reasonable as far as interest rates are concerned. When our cost of funds goes up, a proportionate or identical increase in the interest rates will also be seen.
We have already effected at 1% interest rate hike and it will be reflected in the next quarter. Our borrowing cost also may go up by almost a percentage and our income also will go by about the same 1%.
There were demands to create a special liquidity window as a source of emergency funding to NBFCs. What is the status on that and do you believe that this is the right approach?
I do not know. I still do not know how banks or RBI can help NBFCs because unlike banks, NBFCs do not have any SLR deposit or treasury bonds, from where RBI can give NBFCs.
But helping NBFCs in this time is always welcome and in fact I personally do not know from which fund or from where RBI can help other than by asking banks to be more liberal with their lending to NBFCs. But if there is a special window or special funding from RBI, that is definitely welcome.
Because banks are the major source of funding for your company with 47% coming from banks, do you see any constraints in lending to NBFCs?
As I said earlier, if the cost of funds goes up by 1%, we will increase the lending rate also by 1% because gold loan rates unlike housing finance, etc, is not very rate sensitive. So a 1% increase will definitely be accepted by the public.
The cost of fund, etc, would not be a problem but as Muthoot Finance, we certainly have a very good franchise for retail resources and we have very good customer base for retail NCDs which we had been using in the last several years and decades.
In last one-two years, we have not been very keen on that because we were getting the bank funding in the CPs at much lower rates. We will now look at more fund raising through this NCD routes and maybe have regular NCDs.
At present, we have NCD issues every once in four months, six months, etc. We will have it a little more regularly so that our funding dependence on banks and mutual funds can come down. I think that is what RBI and SEBI is also saying that companies should have more of NCDs and less dependence on bank funds.
So, we are in the right direction there also. As a policy, Muthoot Finance will be tapping the retail NCD market with 2 lakh customers coming to our branches every day. We have a very big customer franchise and I am sure they will be able to support us with NCDs and their resources also.