By Hariprasad Radhakrishnan
Non-bank finance companies (NBFCs) should be allowed to open branches as the masses need money, says Thomas John Muthoot, CMD, Muthoot Pappachan Group, in an interview with Hariprasad Radhakrishnan. Muthoot says the lender is awaiting more clarity from the RBI on the rollout of its repayment moratorium. Fragments:
Since gold loans are well collateralised, how much impact do you expect gold financiers to have as a result of the Covid-19 crisis?
There will be no major impact on gold financers, except that we may need to extend the loan maturity by three months based on the moratorium. The impact would be low as many of these loans were granted almost a year ago and the LTV (loan-to-value) of these loans is much lower. Most loans are paid off, but a few may not be paid off. The realization amounts to 100% including the principal and interest on such loans.
What would be the impact in your other business segments, such as home loans, two-wheel loans and small business loans?
There will be a very limited impact on affordable home loans, most of which are backed by cash flow, mainly to the salaried, fixed income class. Most customers also have a fixed income with two-wheeler loans. Some of them may need a three-month moratorium. Even before the COVID-19, the car industry went through a difficult period. In addition, there would be some impact. However, we had not grown much in the segment last year, so the effect on the two-wheeler segment should not be significant.
Have you entered a moratorium and what is the response of your customers?
We have yet to give the suspension of payments to the customers, because when we are operational, we would like to talk to the customer and if they are affected, we will offer the suspension of payment. If they are not affected, we recommend that they do not resort to the moratorium to reduce their liability. We are awaiting any clarification from RBI whether the moratorium is required or based on the lender’s judgment. We have texted our customers to find out if they need the moratorium. If no deferrals have been issued by banks, there should be clarification on how we can pass the deferrals to our customers. We asked RBI to allow NBFCs to function alongside banks, as the masses need money at the moment.
Do you expect liquidity to be affected as the moratorium reduces loan collection?
We have sufficient liquidity in all four of our NBFCs. We have sufficient liquidity to meet all of our obligations, and many undrawn lines of credit are also available. Now, with the latest RBI intervention, all banks have been getting a lot of liquidity. Now, even during the lockdown, the banks have contacted us to understand our plans and business requirements. Today, when banks are on an equal footing with funds, they need to lend to entities, especially private NBFCs, to kick-start the economy.
Do you expect gold price volatility to affect your earnings?
Even before the close, there was so much erratic movement in the gold price. This only happens if there is a trend of uncertainty in the market and we need to be careful about the loan-to-value we are borrowing from. That’s why we decided to keep our LTV at a certain level. Where we could borrow at Rs 2,750 per gram, we had deliberately kept it lower with Rs 2,650 per gram, so that there is protection against heavy fluctuations. As soon as we are operational again, we will provide loans to the same LTV.
Do you see opportunities to improve your digital platforms during the lockdown?
In the past three weeks, we have aggressively promoted the use of digital payment methods. We have a product called 24 × 7 SMS Gold Loan, which allows customers to send SMS to get a top up on their registered bank account. If a customer has used 50% of the approved loan amount, the customer can use the rest by sending an SMS. The money is credited directly to the customer’s bank account and she can then withdraw the money from an ATM.