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The gold loan business is mostly unaffected by the day-to-day volatility in gold prices.
Gold loan major Manappuram Finance expects to get funds from banks for on-lending. However, the company will continue to raise funds through NCDs and from overseas markets to diversify its borrowing portfolio, VP Nandakumar, MD and CEO, tells Vinayak Aggarwal and Shashank Nayar.
Has the rise in gold prices affected demand for gold loans?
The gold loan business is mostly unaffected by the day-to-day volatility in gold prices. However, in a scenario of consistently rising prices, we may get an initial pick-up in demand coming from small and marginal borrowers attracted by the higher loan amount. Our observation is that this is not usually sustained as higher prices soon become the new normal.
The other important aspect is that customers avail gold loans based on their needs. Generally, they are not tempted to borrow more just because with higher gold prices the available loan amount is also higher. In fact, with some borrowers, it can also happen that higher gold prices lead to a pledge of a lower quantity of gold. Our current gold loan book LTV is only about 62%, well below the regulatory ceiling of 75%.
The borrowing costs amount to 9.27%, in line with the cost for other AA-rated NBFCs. Do you see costs going down? Also, are you considering NCDs or overseas issuance of bonds to raise capital?
In Q1 of this year, our weighted average cost of borrowing went up by 7 bps to 9.34%, but this was more due to long-term loans we recently availed as part of our strategy to further strengthen ALM. We have the approval to raise up to Rs 1,000 crore via NCD, of which we have raised about Rs 400 crore only. To further diversify our borrowing profile, we would continue to raise funds via money market instruments, NCDs, term loans from financial institutions, and also overseas borrowings depending on the cost.