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Muthoot Finance Directors Report _ Muthoot Finance Ltd Directors Report

Muthoot Finance Directors Report _ Muthoot Finance Ltd Directors Report

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Published by Manish Pareta

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Published by: Manish Pareta on Sep 19, 2013
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9/15/13Muthoot Finance Directors Report | Muthoot Finance Ltd Directors Reporteconomictimes.indiatimes.com/chairmanspeech.cms?companyid=33218&year=2012&prtpage=11/2
You can view the entire text of Chairman's speech of Muthoot Finance Ltd.
Mar 2012Mar2013
Director Report
Dear Shareholder''sInterestingly, India is among the world''s largest consumers of gold with an annual appetite of around 900 tonnes.It is estimated that around 65% of this gold finds its way into semi- urban and rural geographies as ornaments.Ironically, even as India suffers from a capital shortage, much of this gold continues to stay locked in the form of ornaments even as its holders need to take loans for their short-term needs at high interest rates from theunorganised sector.Collateral roleFor decades, India''s gold loan industry serviced the needs of rural and semi- urban millions through a simpleproposition: pledge your gold, take a short-term loan, repay and take your gold home. As a result, gold jewelleryhas been treated only as a means to mobilize finance for working capital requirements; the industry has notevolved to finance the purchase of jewellery. As it has turned out, in our business, gold jewellery merely servicesthe role of safe collateral against which finance can be provided.Over the decades, a significant par t of the loans acr oss rural and semi-urban India was provided to those without bank accounts. This made the recipients financially inclusive for the first time. Even as this was happening, theinteresting point isthatorganised gold loans accounted only for a mere 10% of India''s total gold holding, clearly implying that with increasing penetration, the productivity of India''s rural economy can be easily strengthened.Economy driver The evidence then is that gold loans are a safe, liquid and convenient way to transform an economicallyunproductive asset into an economy driver for some good reasons.One, the business is adequately collateralised. Even after two of the most sweeping downturns in the global andIndian economy since 2008, no organised gold loan company defaulted to lending banks.Two, the business revolves around the smaller ticket size short-term credit requirements of people and smallbusinesses, which requires a specialized approach and is generally unviable for commercial banks due to alarge volume of transactions.Three, the product offers customers a superior borrowing alternative - without service charges, processing fees,upfront interest collections or prepayment penalties.Gold jewellery is an intrinsic part of the Indian social system. Hence, gold loans do not drive gold imports. Thebusiness only represents a monetization of gold that is already existing in the country. The gold loan sector provides a deep service by bringing liquidity to an asset class that would have otherwise remained idle.RBI regulationIn this context, some of the recent directives of the Reserve Bank of India to regulate the growth of India''s goldloan industry come as a serious assault on the inclusive growth agenda of the country.In March 2012, the RBI directed that NBFCs must not provide loans exceeding 60%of the value of gold jewellerypledged with them.In April 2012, the RBI directed banks to rationalise their exposure ceiling in a single NBFC, having gold loans tothe extent of 50%or more of its total financial assets, from 10%to 7.5%of the bank''s capital funds. At Muthoot, while we welcomed the RBI''s regulation to cap the loan to value as a way of industry-widestandardisation and compliance, we feel that the recent initiatives could stagger industry growth and induce a shift
Muthoot Finance Ltd.
533398 |
Finance & Investments |
ISIN code:
INE414G01012 |
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