Billionaire family turns India’s gold obsession into a fortune

GOLD is having a moment in the sun and the billionaire Muthoot clan of India is reaping the benefits.

- CHANYAPORN CHANJAROEN AND ADVAIT PALEPU

Their family-run firm that’s doled out gold loans for almost nine decades is on a roll as consumers take advantage of surging bullion prices to swap jewelry for short-term cash. The boom has pushed the company’s stock to a record, boosting the Muthoots’ combined fortune above $13 billion, according to the Bloomberg Billionaires Index.

“The market is exploding,” said George Alexander Muthoot, 70, the managing director of his eponymous firm and third-generation executive of the business. “Even for rich people, it’s fashionable today to take gold loans.’

Muthoot Finance Ltd’s rise speaks to the growing clout of India’s shadow banking sector, which is helping fuel the countrys economic growth. Gold lending across all firms surged 35% in the 12 months ended in June to 13-4 trillion rupees ($151bn), by far the fastest growth among consumer loans, according to CRIF High Mark Credit Information Services Pvt.

The company’s biggest challenge now is keeping rivals at bay, with gold hovering near a record high. Competition is heating up after Bain Capital agreed to pay about $500 million for an 18% stake in gold lender Manappuram Finance Ltd. Mitsubishi UFJ Financial Group Inc. meanwhile is reportedly in talks to buy 20% of shadow bank Shriram Finance Ltd. for $2.6bn. Muthoot Finance's plan to expand its 7 500-plus network of branches by up to 200 a year may not be enough to maintain its dominance as India’s top gold lender.

During a recent earnings call, analysts peppered Muthoot with questions about how the firm is going to deal with foreign competitors, as well as the local banks that are aggressively expanding their gold-loan portfolios. He shrugged off the queries, saying the overall market is expanding.

“There is no need to take any hasty or knee-jerk reactions,’ said Muthoot. “The challenges in the operations will catch up with them?”