The Reserve Bank of India’s (RBI) clamping down on gold loan companies by putting a cap on the loan-to-value (LTV) ratio has impacted the growth of Muthoot Finance, India’s largest gold loan company. For the first time, the company has seen its gold loan outstanding decline by 5% to Rs. 23,000 crore as on June 30, 2012, from Rs. 24,300 crore as on March 31, 2012.
Concerned about the rapid growth of gold loan finance companies in recent years, RBI in March, 2012, had put a cap of 60% on the LTV ratio for such firms.
Post the regulation, gold loan finance companies, which were till then lending up to 85% of the value of gold jewellery, were not allowed to lend more than 60% of the value of the jewellery pledged. Muthoot Finance, till March 2012, had an average LTV ratio of 72%.
“This is the first time we have seen our gold loan outstanding decline and the cap on the LTV ratio is the main reason for it,” said K Padmakumar, executive director, Muthoot Finance.
“We are seeing our customers switch to banks and moneylenders as the LTV ratio cap does not apply to them,” he said.
For the company which saw its gold loan outstanding grow by 57% in 2011-12, the current financial year will be the year of consolidation. “This will be the year of consolidation for us. We are looking at a growth of 20% in our gold loan outstanding in the current fiscal and will be opening fewer branches this year,” said Padmakumar.
The company plans to open around 200-250 branches in the current financial year, which is far less than the 900 branches it had opened in 2011-12. At the end of March this year, Muthoot Finance had 3678 branches in the country, of which around 60% were located in south India.