Can turn 2,000 gold loan outlets into bank branches: Muthoot Finance

The largest pure-play gold mortgage player, Muthoot Finance, which has applied for banking licence, has said it can easily launch commercial lending business with as many as 2,000 branches.

"We are confident of getting a banking licence from the Reserve Bank, given our reach in rural markets and our over a century of experience. In fact, our experience is the biggest asset and we are better suited than many other applicants in this regard," said George Alexander Muthoot, managing director of Muthoot Finance, told PTI from the company's headquarter in Kochi.

Many of its branches are in tier 2,3 & 4 towns and they can be immediately converted into a full-fledged bank branches. Mr Muthoot said 4,200 branches, large existing customer base and strong brand image makes it an eligible candidate.

With 74 years in gold financing, the company has over 4,200 gold loan outlets across 21 states and four Union territories, and employee strength of over 25,000 with a gold loan portfolio over Rs 26,000 crore as of last fiscal year.

"With our last mile connect in to the hinterland, a banking licence will enable us to play a larger role of financial inclusion by taking these services to the unbanked and undeserved population of the country," he further said, adding that around 60 per cent his existing branch network is spread across tier 2, 3 and 4 markets.

On whether the company will continue with the gold loan business if it gets a banking licence, he said there is no question of shutting that down as there is no regulatory requirement to shut down the existing business.

About meeting the funds requirement for the banking foray, he said arranging Rs 500 crore, which is the RBI prescribed net-worth for bank holding company, will not be difficult.

Muthoot Finance and 25 other companies, including Tatas, Reliance, Birla and India Post, have applied for bank license.

Last month, the company got an in-principle go-ahead from the RBI to launch white-label ATMs and it plans to set up at least 9,000 money vending machines over the next three years.

Mr Muthoot also said that he does not see much growth in gold loan vertical this fiscal, given the fall in the prices of the metal and the regulatory curbs.

He said more and more people were not servicing their loans of late, forcing the company to auction the pledged jewelleries after the mandated period.

"Our recovery process through auctions has nearly doubled to 2 per cent of the asset base in the past few months due to the steep fall in gold prices," he said.

In the fourth quarter of FY13, the company had reported a 6.4 per cent dip in net profit on higher provisioning at Rs 220 crore.

Shares in Muthoot Finances settled at Rs 95 at the end of last week on the BSE, down nearly 1 per cent from the previous close.