Gold loans are no longer merely the last source of credit for the poor: Shaji Varghese, CEO, Muthoot FinCorp

Synopsis

Muthoot Fincorp is gearing up for a monumental ₹4,000 crore IPO, seeking to ignite its expansion plans and harness the momentum of its current growth trajectory. With an optimistic eye on the future, the company is poised to navigate market fluctuations and continue its upward path. The funds raised will be pivotal in propelling further innovations and initiatives.

Muthoot FinCorp board approved a fundraise of ₹4,000 crore through an initial public offer comprising only a fresh issue of equity shares. In an interaction with ET, chief executive officer Shaji Varghese says that the company expects the business momentum to continue despite the current market adversities. (Muthoot FinCorp, the flagship gold loan company of the Muthoot Pappachan Group, is different from the listed Muthoot Finance, which is India's largest gold loan financier. They are different branches of the same Muthoot family, which has a 138-year business legacy). Edited excerpts:

Why are you beginning the IPO process in a volatile market?

Public listing has been a part of our business expansion plans. Now, we are witnessing good momentum and are well poised for further business expansion. So, the capital will provide a good platform for growth. We grew our business by 75% in FY26 to ₹56,185 crore and we expect the momentum to continue this fiscal as well.The board has approved the fundraising. We will now start working on engaging investment bankers. We will need some more time to know the precise timeline of the issue.

Can the gold price fluctuations dampen the pace of business acceleration?

We don't think so, because the rise in gold prices is not the only driver behind market expansion. The demand for gold loans grew as the supply of unsecured credit moderated. There have been no prepayment charges on gold loans, and the credit cycle can be just a few days or few weeks, making it a convenient tool for meeting liquidity gaps. Most importantly, banks' growing participation has made gold loans a mainstream product. It's no longer merely the last source of credit for the poor. They are largely used by small businesses.

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However, does the gold price correction warrant caution?

We have enough cushion against a moderate gold price correction. Our average loan-to-value ratio was 57.58%. There was a 15% price drop in March, but after that there have been ups and downs. A moderate price correction would not raise the risk of losing principal and trigger auctions of pledged gold.

What is the break-up of the income-generating gold loans and consumption-oriented gold loans?

Till March 31, there was no regulatory mandate for non-banking finance companies to segregate loans as per end-use. We have just started this exercise as the regulations require it from April 1. However, as per broad estimates, we believe about 70% of our gold loan customers took the loan for business purposes.

What is your borrowing plan this fiscal?

We have plans to raise funds by selling commercial papers with an overall limit of ₹30,000 crore. However, the maximum outstanding limit, at any point in time, would not cross ₹10,000 crore.

What are the plans around your subsidiaries?

We have two subsidiaries. Muthoot Microfin is already listed and autonomous. We also have Muthoot Housing Finance, which is 100% promoter-owned. We would like to focus on this business and explore the opportunities available in the affordable and mid-market segments. Going by the internal capacity, the company can grow 25-30% in the next few years. The company has enough capital for balance sheet expansion.

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