With the price of gold entering a strong bull run, gold-loan non-banking financial companies (NBFCs) are under the spotlight, even though their performance is not directly linked to gold price.
Photograph: Amit Dave/Reuters
Muthoot Finance outperformed in the April-June quarter (Q1) of 2025-26 (FY26), with its assets under management (AUM) growing 10 per cent quarter-on-quarter (Q-o-Q) and 42 per cent year-on-year (Y-o-Y), an improvement of 88 basis points (bps) Q-o-Q in net interest margin (NIM), and a fall in credit cost.
Gold AUM rose 40 per cent Y-o-Y and 10 per cent Q-o-Q.
The company recorded recoveries of Rs 350 crore, including Rs 100 crore from an asset reconstruction company (ARC), resulting in a 100-bp Q-o-Q yield increase.
The rise in tonnage was modest at 1 per cent Q-o-Q due to higher gold prices. Its active customer base grew only 1 per cent Q-o-Q, with 420,000 new customers (compared with 410,000 in Q4FY25).
The churn is high, as the average loan tenure is three to six months.
Gold loan growth was strong even for Muthoot Money, a wholly owned subsidiary.
Muthoot Money’s AUM rose 202 per cent Y-o-Y, while the non-gold (vehicle finance) portfolio reduced. Non-gold AUM at Muthoot Money was Rs 150 crore, around 3 per cent of its AUM.
Belstar, the microfinance subsidiary, is also expanding its gold portfolio and has 15 branches, with plans to scale to 50.
Operating expenses (opex) grew 26 per cent Y-o-Y but reduced 6 per cent Q-o-Q. Management expects opex to grow at the rate of inflation.
Pre-provision operating profit (PPOP) surged 63 per cent Y-o-Y (30 per cent Q-o-Q), and lower credit costs pushed profit after tax (PAT) up 90 per cent Y-o-Y (36 per cent Q-o-Q).
Productivity per branch rose to Rs 23.2 crore, up 39 per cent Y-o-Y.
Cash on the balance sheet increased by 7.5 per cent, dragging down NIM by an estimated 20-25 bps.
Despite stiff competition, however, the management is confident of retaining yield.
Asset quality improved with Stage 3 (GS3) loans down 16 per cent Q-o-Q, as the company recovered Rs 600 crore in gold and non-gold segments.
Stage 2 (GS2) loans dropped 60 per cent Y-o-Y. Non-gold non-performing loans (NPLs) fell to Rs 270 crore from Rs 300 crore Q-o-Q.
Overall NPLs decreased to 2.58 per cent from 3.41 per cent Q-o-Q.
Muthoot auctioned Rs 13 crore of gold in Q1, against Rs 80 crore in the previous quarter.
Expected credit loss (ECL) was held at 1.3 per cent.
Credit costs fell to 0.15 per cent of AUM from 0.49 per cent Q-o-Q.
The company recovered Rs 100 crore from ARC in addition to normal NPL recovery, and expects recovery of Rs 150 crore from ARC in coming quarters.
Muthoot has 100 per cent provisions on non-gold NPLs and Rs 30 crore recovery of NPLs in non-gold has reduced provisions equally.
The management’s guidance is that the non-gold business (13-14 per cent of the total portfolio) will rise to 15-20 per cent.
Spreads are aimed at 9.5 per cent.
Any significant drop in cost of funds will be passed on.
The Reserve Bank of India’s revised gold-loan norms, effective March 2026, raise the loan-to-value (LTV) cap from 75 per cent to 85 per cent for loans of up to Rs 2.5 crore.
Around 85 per cent of Muthoot’s customers fall in this segment. Average LTV in Q1FY26 was 63 per cent. Gold loan non-performing assets (NPAs) declined by Rs 700 crore Q-o-Q, driven by customer redemptions.
Yields stood at 19.56 per cent, compared with 18.57 per cent in Q4FY25, aided by an interest income from NPA recoveries of Rs 300 crore, and Rs 100 crore interest from ARC recoveries.
Excluding recoveries, yields remained stable. Borrowing cost declined 11 bps Q-o-Q.
Borrowings are mostly linked to the marginal cost of funds-based lending rate (MCLR), with further reductions expected.
In Belstar Microfinance, the provisioning cycle is improving, with 99.8 per cent collection efficiency and profitability likely by Q3FY26.
At Muthoot Money, AUM reached Rs 5,000 crore, with Rs 150 crore in vehicle loans and the rest in gold loans.
Its branch count stands at 997.
While there are risks like competition from banks and fintech companies, and the need to manage gold-price fluctuations, the company is performing better than peers.
It has a model with a high-churn portfolio, high yield and improved asset quality.
The management has maintained guidance for gold AUM growth of 15 per cent for FY26, with NIM of 11-12 per cent and spreads of 10 per cent.
On Thursday, the Muthoot Finance stock was trading 1.3 per cent lower.
However, it has significantly outperformed the BSE Sensex year-to-date in 2025, rising almost 38 per cent, compared to a gain of about 4 per cent in the Sensex.
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