Muthoot Microfin optimistic despite industry headwinds
MUMBAI: Kochi-based Muthoot Microfin is hopeful of better days ahead, even as the industry faces several headwinds. The second-largest micro-lender expects the third interest rate reduction earlier last month to attract more customers while improving collections.
The publicly listed company, with a loan book of Rs 12,500 crore as of September 2024, lowered its lending rates for the third time this fiscal in December, by 25 basis points to 23.05 per cent for group loans and by 125 basis points to 22.70 per cent for third-party product loans.
This has compressed its margins to 13.24 per cent. Earlier, in January 2024, it had slashed interest rates by 55 basis points, followed by another 35 basis points in July.
Sadaf Sayeed, Chief Executive of Muthoot Microfin, admitted that the steep rate reductions would squeeze margins but said the company chose to pass on the benefits of cheaper funds to borrowers.
“With increased market borrowings, our cost of funds has come down to 10.3 per cent now,” said Sayeed.
Sayeed based his optimism on the comparatively smaller exposure the company has to Bihar—the largest market for the industry—where the maximum delinquencies have been reported for many months. He also pointed to Eastern Uttar Pradesh, which is facing serious collection issues.
For Muthoot, Tamil Nadu remains the largest market, contributing 23 per cent of the overall business.
“Almost 50 percent of our loans are in the South, where there is no over-leveraging, and so collections are not affected, barring Tamil Nadu, the second-biggest market for the industry in December due to the cyclone. Our exposure to Bihar is only 8 per cent, and our collections are still 95-96 per cent,” Sayeed told TNIE.
“Frankly, our bigger headache is Orissa and Jharkhand. In Odisha, the new BJP government has put on hold many freebies that the previous BJD government had launched in the run-up to the Assembly election. This has led to repayment delays now,” he said, adding that Jharkhand has its own unique issues.
On asset quality, he said overall Gross Non-Performing Assets (GNPA) stood at 2.7 per cent, with non-southern markets reporting 3 per cent and southern markets recording 2.5 per cent in the second quarter. He expects these figures to remain stable in the second half of the fiscal year.
Blaming negative real rural wages and high inflation for the problems facing the industry, where many analysts say a third of the assets are stressed, Sayeed warned that the challenges are likely to persist for some time.