Synopsis "If you are in the money, why should we trouble a customer. We can definitely hold those loans as stage 3 and still work in the company so that it does not affect our growth."
In quarter two we have seen good growth and demand in the gold loans. I hope that it will be there in the quarter three and quarter four also, said George Alexander Muthoot, MD, Muthoot Finance Edited excerpts:
You had earlier said that you would use auctions as a last resort, and we have not seen any auctions. Does that indicate that to a certain extent the pressure that you were seeing on asset quality is somewhat easing? How have collections been and could you take us through the key highlights of the first quarter? This quarter has been definitely challenging. Last year same quarter the lockdown was in March, April and May. This year the lockdowns were more pronounced in April, May and June. So, during the full quarter there were quite a lot of lockdowns in many states. But in spite of that, we were able to probably do reasonably good collections and growth because growth has not really happened in this quarter, but quarter two we have seen good growth and demand in the gold loans. I hope that it will be there in the quarter three and quarter four also.
Regarding auctions, it is not that we do not do any auctions, etc. We also need to do it, but it is only a last resort. We try our best to persuade the customer to take back the loan by offering them some concessions or other things, but then finally we try to give back the gold to the customer. Worst come worst, if there is a requirement, we will definitely do auctions also. Probably last year we did an auction of Rs 400 crore. Prior to that year we did an auction of about Rs 900 crore; so 800, 900, 400 is reasonable. I am sure going forward also auctions are necessary, but we try to keep it minimum: that is what our policy with auctions so that customers are happy.
We have seen a rise in gross stage 3, it has come in at Rs 641 crore and that compares with Rs 464 crore in the last quarter. Is this a continuation of what you are seeing in terms of pressure on cash flows for your customers? What is the response that you have gotten in this quarter with regard to collections?
When you say stage 3, we generally are comfortable with anything between 1% to 2%. Now in stage 3 it is just 1%, and previously it was less than 1%. So Rs 600 crore is actually nothing alarming, nothing to be concerned about. Moreover, all these loans we have the full collateral with us so we look at it as ‘we are in the money’. If you are in the money, why should we trouble a customer. We can definitely hold those loans as stage 3 and still work in the company so that it does not affect our growth, etc. As long as we are able to hold it in our books that means when we make it as a stage 3, we do not accrue the interest on such things. But nevertheless, even without that we are able to maintain our profitability. It makes sense since we are in the money, not to trouble the customer and auction the gold. As long as the stage 3 is between 1% and 2% it is nothing alarming and finally, we have the gold with us, it will never become a loss asset for us. Has a large part of the impact of COVID second wave been felt already or do you think there is a possibility of provision write backs as well? We have never had write backs of interest of principal asset, but I do not think we will have to have write backs of principal or interest in the gold loan sector. Probably we may see some small, little write backs, and little stress on the non-gold loan portfolio which is only very minimal as far as we are concerned.
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