Muthoot Finance-controlled Belstar Microfinance Ltd is launching gold loan business to diversify its book and reduce risk in the portfolio. The diversification will create a new income stream, helping the company ahead of its initial public offering (IPO).
“We are looking to diversify the portfolio of microfinance business up to RBI permitted limit of 25% of the total AUM (assets under management),” said George Muthoot, managing director, Muthoot Finance.
The Chennai-based microfinance institution (MFI), with an assets under management of ₹8,703 crore, had posted a net profit of ₹24 crore at the end of December 2024, compared to ₹1,003 crore during the corresponding period a year ago.
As on 31 December, Belstar had 1,224 branches and 272 controlling regional offices with presence across 19 states. Muthoot Finance holds a 66.13% stake in Belstar Microfinance.
IPO plan on hold amid industry stress
The non-banking financial company has postponed its public-listing plans for the next 3-4 quarters due to the ongoing stress in the MFI sector. Belstar had received the approval from Securities and Exchange Board of India (SEBI) to launch a ₹1,000 crore IPO and ₹300 crore offer for sale.
Experts say diversifying into gold loan business ensures a steady stream of income.
“All MFIs are diversifying into other businesses as the industry has been challenging. Credit cost for MFIs has been a cause of concern and that’s why MFIs are looking to diversify into MSMEs, individual personal loans etc,” said an official with a MFI company.
Interestingly, Muthoot Finance is also looking to transform its subsidiary Muthoot Money from a pure vehicle finance company to a gold loan company. In its third-quarter analyst call, the management of Muthoot Finance said that it has nearly 950 branches currently.
Lenders tap gold business
“This year, we focused on expansion of branch network in our wholly-owned subsidiary, Muthoot Money. So, we have added almost close to about 800 branches during the year. And now we have transformed Muthoot Money from a pure vehicle finance company to a gold loan company. we fear that vehicle finance business is too competitive, and the margins are lower. So, we transformed that company into a gold loan company,” the transcript said.
On Wednesday, Poonawalla Finance also announced its entry into the gold loans business to strengthen its presence across tier-2 and tier-3 cities.
Earlier this month, the Reserve Bank of India (RBI) issued a draft circular proposing measures to strengthen norms for loans given against gold ornaments and jewellery. RBI is looking at refining the underwriting processes, enhancing the management of collateral, and ensuring that the funds are utilised appropriately.
RBI has suggested establishment of specific limits for single borrowers as well as sectoral caps on the gold loan portfolios of banks. Additionally, mechanisms to verify the end-use of loan funds, a mandated loan-to-value ratio of 75%, and standards pertaining to the purity of gold have also been proposed.
