Muthoot Finance sells Rs 725 crore distressed gold loan portfolio to Arcil
Muthoot Finance sold a gold loan portfolio of Rs 725 crore to Asset Reconstruction Company of India (Arcil) on a par, said two people with knowledge of the matter.
This is the first time a gold loan portfolio is being sold by a lender to an asset reconstruction company (ARC). Most lenders prefer in-house recovery since the value of gold is adequate to cover the value of the loan disbursed.
Muthoot did not take a significant haircut as gold value has appreciated and the transaction is structured in a way that upside would be shared by the Avenue Capital backed ARC with the finance company.
Kerala-based Muthoot Finance sold the gold loan portfolio under the 15:85 structure wherein 15% of the consideration is paid in cash and the balance is in the form of security receipts.
Muthoot Finance and Arcil did not respond to ET’s request for comments.
Muthoot Finance has a leadership position in the gold loan business and gold loan portfolio is about 86% of its consolidated book, as on June 30, according to a report by Icra Ratings dated August 28.
Muthoot’s gold loan book has more than doubled over the last five years to Rs 66,039 crore as of June 2023, Icra has stated.
Most banks and finance companies have resorted to auctions of gold to recover their dues.
In the fiscal years 2023 and 2022, gold loan auctions undertaken by Muthoot Finance stood at Rs 2,203 crore and Rs 5,211 crore, respectively.
As against this, in fiscal year 2021, it auctioned Rs 171 crore and in FY20 it auctioned Rs 579 crore. Icra Ratings, in its rating report, said that the large quantum of the auction in FY23 and FY22 could be due to Covid-19 pandemic-related defaults.
CRISIL Ratings, in a report released in March 2023, said gold loan AUM (asset
