Rivals may dull Muthoot's shine

Gold is a safe haven in tough times and the ongoing geopolitical tensions could keep the yellow metal pricey. In turn, this should drive demand for gold loan providers such as Muthoot Finance Ltd.

-  Harsha Jethmalani

But so far in this financial year, Muthoot has lost some of its spark with sequentially declining gold loan assets under management (AUM) growth and contracting net interest margin (NIM). The challenge for Muthoot is to maintain its loan growth and margin expansion simultaneously. Here, competition, rising cost of funds and elevated operating expenses pose as key hurdles.

In this context, Muthoot’s September quarter (Q2FY24) results have failed to cheer. Among the key highlights, gross AUM of its mainstay gold loan business rose 21% year-on-year aided by a low base, but quarter-on-quarter growth was muted at 2% (versus 7% in Q1FY24) to ₹69,002 crore. The management is confident of achieving 14-15% AUM growth in FY24. Reported net interest margin (NIM) fell to 10.88% in Q2 from 11.58% in Q1 and 12.26% in Q4FY23 owing to rising cost of funds along with declining yields. The management expects cost of funds to inch up from 8.46% in Q2 to 8.6% ahead. Nonetheless, the management aims to maintain margin and spreads by passing higher interest cost to borrowers.