Mumbai: IPO-bound Muthoot Fincorp sees increased duty on gold adding to loan growth as higher prices post the hike expand borrowing headroom, even as the company has begun tracking end-use of loans from April in line with Reserve Bank of India norms and finds that a majority 70% are for productive purposes rather than consumption.Explaining the impact of rising gold prices, Shaji Varghese, CEO of Muthoot Fincorp, said, “Higher gold prices increase the loan value customers can avail, which can support AUM growth. It makes gold loans more attractive compared to other borrowing options.”The company has also operationalised new regulatory requirements on tracking loan usage from April 2026. “It’s early days, but based on past experience and internal estimates, about 70% of loans are for productive purposes. The remaining 30% is for emergencies, education, and similar needs. Many borrowers are shopkeepers, retailers, and farmers.”On the proposed public issue, Varghese clarified that there is no fixed dilution target beyond regulatory requirements. “The board has only approved an Rs 4000 crore equity raise, and valuations are not in place. No shareholders are selling, and there is no OFS—it is entirely primary issuance,” he said. “There is a regulatory requirements, which mandate a minimum public shareholding of 10%. Beyond that, dilution will depend on valuation closer to listing.”Addressing concerns around geographic concentration and external risks, he said the company’s footprint has broadened significantly. “We are now a nationally present company with growth coming from the north, west, and east. Our dependence on the south, especially Kerala, has reduced significantly,” he said, adding that the state now contributes “a single digit” share. He also downplayed the impact of NRI-linked exposure. “NRI exposure is not a major factor for us.”On asset quality, Varghese said there are no signs of stress. “Not at the moment. Our loan-to-value ratio is below 60%, so even if there is some stress, the portfolio is well protected unless there is a sharp correction in gold prices.” The company currently holds around 62.4 tonnes of gold as collateral.Muthoot Fincorp has also been diversifying its funding mix alongside equity plans. “We have been diversifying our liability profile. Earlier we relied heavily on bank borrowings, but now we have expanded into capital markets, mutual funds, foreign currency borrowings fully hedged, and NCDs,” he said.On sector dynamics, Varghese maintained that competition from banks is expanding the market rather than compressing margins. “No, this is more a market expansion than a market share battle,” he said. “There could be some pressure from cost of funds, but scale efficiencies should offset that. Margins are unlikely to shrink significantly.” He said return on assets stands at about 4.16% while net interest margins are around 10.31%, with stability aided by operating leverage.The CEO also underscored the structural growth opportunity in gold loans. “The environment is favourable. Regulation is stable, unsecured lending has slowed, and gold loans are gaining acceptance as a mainstream product,” he said, noting that only about 40% of the segment is formalised. “The real competitor is the informal sector. Formalisation will drive growth.”On timelines for the IPO, Varghese indicated that the process is at an early stage. “It is too early to give timelines. We have just received board approval and will now appoint bankers and lawyers and begin preparing the DRHP. The process is subject to regulatory approvals and market conditions, so timelines are not fully in our control,” he said.
