We Are Insulated From NBFC Crisis: Muthoot Pappachan Group CMD

New Delhi, June 12: Though the Indian financial sector is going through turmoil due to non-banking financial company (NBFC) crisis, Muthoot Pappachan Group (MPG) remains completely insulated from it, said its Chairman and Managing Director, Thomas John Muthoot.

The 132-year old organisation with fourth generation family members entering into business does not see any reason to worry for them. “It has been challenging times for the NBFC space for the last 9 months that we have seen. Everyday there are stories on NBFCs for good or bad reasons. I would like to tell you that the NBFC space in which we operate, we are very positive on the liquidity and asset liability management (ALM), mainly because we cater to retail small loans,” said Muthoot in a roundtable discussion here in the national capital.

In the company, for a gold loan customer, the average loan size is at Rs 35,000, micro-finance Rs 25,000-30,000, two-wheeler Rs 50,000 and housing Rs 6 lakh.

He said ALM is always positive for gold, auto loan or microfinance, because these are retail loans and they are repaid on a daily, weekly or monthly basis. So, there is absolutely no worry.

“What we have seen in the last nine months, except for October and November, that banks have been very liberal with our companies because we are in a space where we do small loans to retail customers. NBFCs are all painted in one brush and people think we all have problems. But retail NBFCs, the segment where we serve, there is absolutely no challenges with regard to ALM mismatch and banks have been very positive in giving us loans for the last three-four months in spite of the liquidity crunch,” Muthoot said.

However, he said cost of borrowing has gone up in the last one year, particularly in the last nine months. There has been slight increase of 50 basis points in the borrowing cost. “I think going forward it would stabilise. Going forward we will see some ease of funding for NBFCs.”

The company officials said despite the NBFC crisis, the company has an opportunity to grow because of its distribution channels and branches. With 3,600 branches across the country, the MPG has 44.5 million customers encompassing gold loan, auto loan, housing loan and microfinance business.

The company started as a chit fund company in the financial market and later on moved into lending business. It has diversified products on lending and savings product for the common man.

Muthoot said banks should not be the only source, there should be other source like the non-convertible debentures (NCD) or other sources of funding. “We have a good base of retail investors with us because we are in the business for last so many years. NCDs have been a good source for us and they come at very fine rate, below bank rate. So according to the need we can always source these kinds of funding.”

He said there is no rural slowdown that the company has experienced. On the contrary it has seen uptake in semi-urban and rural areas in credit off-take.

The lending rates of the company in gold is, 12 to 21%; MSME at 24%; Microfinance at 21%, Two-wheeler at 22% and Housing 13-15%.

The company’s overall growth last year was between 25-30% with the gold loan sector growing at 16%, Microfinance at 53%, Two-wheeler at 22% and Housing at 30%.