Gold loan firm Muthoot Finance seeks second shot at bank licence


Mumbai: Leading gold loan provider, Muthoot Finance Ltd, wants a second shot at getting a bank licence once the draft guidelines for on-tap bank licences are finalized by the Reserve Bank of India (RBI).

“Certainly, we are thinking about applying for a licence when the final rules come,” said George Alexander Muthoot, managing director of Muthoot Finance. “We have gone through the draft guidelines, although not in full detail. But I feel it is quite friendly for NBFCs (non-banking finance companies). Especially for an existing NBFC with established business, branches and resources,” he added.

RBI on Thursday released draft guidelines for providing bank licences on tap, in which the central bank said that NBFCs and experienced individuals can apply for licences subject to conditions. Large conglomerates, however, were not allowed to seek licences although they can invest up to 10% in a bank.

In the case of NBFCs, RBI said that these entities must be “controlled by residents” and have a successful track record of at least 10 years.

A minimum net worth requirement of Rs.500 crore has been set for the new banks, which will have a foreign shareholding limit of 74%.

In its guidelines, RBI has not specified whether the existing business of the NBFC would need to be transferred to the bank as the regulator had insisted in the last round of licensing. If that condition is not imposed, conversion of an NBFC to a bank will become easier.

In the previous round of licences, only two entities managed to get the nod to open a bank out of the 25 firms that applied. Muthoot Finance was among the 23 that did not get a licence.

Muthoot said that it is in a stronger position than before and stands a better chance of getting a licence this time, once RBI finalizes the framework for licences.

“We have also modernized which will be a plus. We have a 4,500 branch network which will help us,” he said.

Muthoot expects a business growth of 10-15% over the next two years. The company has gone through some rough patches in previous years. In September 2013, RBI brought down the loan-to-value (LTV) ratio from 75% to 60% to stem rapid growth in the segment. This was later restored in 2014. At the time, RBI had also told gold loan companies to seek prior approval from the central bank before opening branches beyond a thousand.

Muthoot Finance had reported a dip of 14% in its profits for fiscal 2014 owing to regulatory changes. For the December-ended quarter, the company reported a 8% growth in net profit to Rs.186.6 crore. The company is yet to report earnings for the March quarter.

As of 31 December 2015, the company’s retail loan assets under management were at Rs.24,940 crore.

Shares of Muthoot Finance closed the day at Rs.193.65 per share, up 2%. The benchmark BSE Sensex closed at 25,228.50, down 0.13%.