Cost of funds low, but not many takers for gold loans

The cost of borrowing has fallen to multiyear lows, but gold loan companies have not been able to make use of the opportunity fully as the demand has not picked up well post-demonetisation.

Manappuram Finance saw the cost of borrowing coming down to 8.56 per cent in December quarter, the lowest in more than eight years.

The cost of borrowing had stood at 9.79 per cent in FY10 and it eased to 9.16 per cent in FY11 before shooting up to 13.73 per cent in FY12. Since then, the cost has been coming down along with the interest rates of banks. It stood at 11 per cent in FY16 and now has dropped to 8.56 per cent.

“The company’s average borrowing cost continued to decline, coming down by a further 26 basis points during the quarter to 8.56 per cent. Borrowing cost for the company has come down significantly, by 130 basis points in the last one year, and 207 basis points over the last two years,” Manappuram Finance said in its Q3 earnings statement.

Muthoot’s interest expense on average loan assets too fell to the lowest level since 2009. From 11.07 per cent in FY09, it had dropped to 8.77 per cent in FY10 before it went up to 11.69 per cent in FY12. It has now come down to 8.69 per cent.

However, the low cost has not reflected in the borrowings of the companies. Borrowings of Muthoot were just one per cent up on a y-o-y basis and six per cent down on a q-o-q basis. As for Manappuram, total borrowings were down 5.7 per cent on a y-o-y basis. However, it has recovered 7 per cent on q-o-q basis.

Muthoot has brought down borrowings through unlisted non-convertible bonds by 30 per cent in December quarter from September quarter levels. Listed NCDs too have come down by 10 per cent. Commercial paper borrowings fell by 56 per cent and subordinated debt too was down by 15 per cent, Instead, bank borrowings, which account for the largest chunk of liabilities, went up by 16 per cent.

However, Manappuram’s share of bank finance among total liabilities came down to 50.2 per cent in December FY18 against 57.1 per cent in the same quarter last year. NCDs too were marginally down to 21 per cent from 22.2 per cent in the year ago quarter. Instead, share of commercial paper moved up from 19.5 per cent in December FY17 to 28.6 per cent in December FY18.

Demand growth has not fully recovered as Manappuram Fianc saw gold loan assets under management grew only 0.7 per cent y-o-y despite the gold prices going up. Similarly, Muthoot too saw the assets growing by just 4 per cent while the asset volumes remaining almost stagnant. However, the low cost of funds helped Muthoot’s net profits rise 59 per cent in December quarter.

Sangeetha G.