Gold loan NBFCs shine, Muthoot more than Manappuram

livemint.com:

₹20,000, indicating no significant impact on their operations. They have seen robust gold loan growth even in April and May. Rising gold prices typically boost demand for gold loans, albeit with a lag, signalling a positive outlook for these lenders.

However, margins need close monitoring. Muthoot’s net interest margin (NIM) improved sequentially, driven by higher yields. The cost of borrowing is anticipated to rise to 9% from the current 8.55%.

The management has expressed confidence in managing a 25-30 basis point increase in borrowing costs, potentially passing this on to customers. This stance marks a shift from Q3FY24 when the management suggested they would not increase rates despite rising costs. Ambit Capital attributes this optimism to reduced competitive intensity, especially with the larger IIFL out of the market.

Conversely, Manappuram’s NIM fell sequentially, hurt by the rise in cost of borrowing. Manappuram has a relatively higher share of non-gold loans in its portfolio and deterioration in asset quality is another concern. A particular pain point is that its subsidiary Asirvad MFI has continued to report asset quality deterioration and high credit costs.

While exposure to non-gold segments has aided consolidated AUM growth of about 19% year-on-year in FY24, a Motilal Oswal Financial Services report has warned that rapid expansion in these areas could bring associated asset quality risks if not managed well. To be sure, both companies have been diversifying to beat the cyclicality of the gold lending business. For Muthoot, the share of non-gold assets in consolidated AUM increased to 16% in Q4FY24 from 13% a year ago.