Ladies and gentlemen, good day, and welcome to the Muthoot Finance Q2 FY 2024 earnings conference call, hosted by Elara Securities Private Limited. As a reminder, all participant lines will be in listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Ms. Shweta Daptardar from Elara Securities Private Limited. Thank you, and over to you, ma'am.
Thank you, Lizann. Good evening, everyone. On behalf of Elara Capital, we welcome you all to the earnings conference call of Muthoot Finance to discuss the Q2 FY24 performance. From the esteemed management team today, we have with us Mr. George Alexander Muthoot, Managing Director, Mr. Alexander George, Full-time Director, Mr. George M. Alexander, Full-time Director, Mr. George M. George, Full-time Director, Mr. George M. Jacob, Full-time Director, Mr. Eapen Alexander, Executive Director, Mr. K.R. Bijimon, Executive Director, Mr. Oommen K. Mammen, Chief Financial Officer. Without much further ado, I now hand over the call to Mr. George Alexander Muthoot for his opening comments, post which we can open the floor for Q&A. Thank you, and over to you, sir.
Thank you, Shweta, and, you know, this is Oommen, CFO for Muthoot Finance. Welcome everyone for the analyst call. I, first of all, let me apologize for the 30 minutes delay. So there was some delay in terms of filing and the, you know, conclusion of the Board meeting, so because of which we could start with a delay of 30 minutes. I apologize for the same. And, you know, anyways, we have a good attendance in spite of that. Thank you for the support. I now request MD Sir to, you know, start the call.
Thank you. Good evening once again. Once again, apology for the delay. So we just had concluded our Board meeting and Muthoot Finance Board meeting.
The performance highlighted for this half year ended September 31st, I would like to present before you. Our consolidated loan, consolidated loan portfolio has shown an increase of 24% year-on-year and now stands at INR 79,493 crore. We have also very, we have, highest ever gross gold loan advance in any first half of a year, of 84,742 gross gold loan advances in the first half of this year. Also, gold loan advances to new customers is also on record high of INR 8,109 crore for this half year. This half year, our gold loan portfolio had grown by INR 5,642 crore, and the increase in gold loan portfolio year-on-year stands at INR 11,016 crore.
The consolidated profit after tax year-on-year stands at INR 2,140 crore for the half year, and the standalone stands at INR 1,966 crore. Our interest collection has been all-time high in any half year at INR 5,447 crore. Coming to the subsidiaries, Belstar Microfinance has an increase in portfolio of 53% year-on-year and now stands at INR 7,874 crore. And the increase in loan disbursement is 76% year-on-year, stands at INR 4,294 crore, and the increase in profit after tax, 284% year-on-year at INR 135 crore.
Muthoot Home Finance, the increase in loan portfolio is 14% and stands at INR 1,616 crores, and the increase in the loan disbursement, 164% at INR 278 crores. There's an increase in profit after tax at INR 9 crores. The insurance brokers has shown an increase in total revenue and stands at 47%, 47 crores, and the increase in profit after tax now stands at INR 25 crores for the half year. Asia Asset Finance, which is a Sri Lankan subsidiary, there's an increase in profit after tax, 31% quarter- on- quarter at LKR 7.2 crores. Increase in branch network, the branch network now stands at 80 branches.
We opened 331 new branches by the group in the half year, raised INR 700 crore through the 32nd public issue of Secured Non-Convertible Debentures, which was oversubscribed on the first day of the issue. Muthoot Finance Limited, in terms of gold loan portfolio, registered a profit after tax of INR 1,966 crore for the half year, as against INR 1,669 crore in the previous half year. It's an increase of 18% year-on-year. The profit after tax for this quarter stood at INR 991 crore, as against INR 867 crore in Q2 of the last financial year. It shows an increase of 14% year-on-year.
Loan assets stood at INR 69,000 crore in the half year, as compared to INR 57,230 crore in the last half year, registering a growth of 21% year-on-year. During this half year, gold loan assets increased by INR 5,642 crore, showing a growth of 9%, and during this quarter, the gold loan increased by INR 1,478 crore. The Belstar and Home Finance and Muthoot Insurance Brokers and Asia Asset Finance, I have just discussed with you. I don't think there is anything more in that to discuss. At least, we will wait for your clarifications and questions.
This is Oommen K. Mammen. No, you can download the investor presentation from the BSE site. I think it's already. I can see that it is there, and the NSE also it is already uploaded.
Okay. I think that concludes my initial opening remarks. I now leave the floor open for questions and clarifications.
Thank you. Ladies and gentlemen, we will now begin with the question- and- answer session. Anyone wishing to ask a question, may please press star and one on your touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Mahrukh Adajania from Nuvama. Please go ahead.
Yeah, good evening, sir. So, this time, on a sequential basis, the AUM growth is only 2%, Q-o-Q. So any comments on outlook for the next few quarters, and why it looks a bit subdued compared to banks who have grown their gold loans aggressively?
Yeah, this quarter, the growth in gold loan was sub, is 2%.
One percent.
It is INR 1,478 crore. That's not a bad growth, and the first half year, the total growth in the first half year is 9%. For the half year, two quarters together, it is 9%. And we had given a guidance of 15%-20% for the full year. I think we stand by it, and we should be able to achieve at the 15%-20% by the year ending.
Okay, sir, but did you in the Q2 , or so far in the Q3 , how do you see competitive intensity from banks? Is it remain more or less similar to the last two quarters, or has it increased?
No, I don't think there is any increase in for competitive intensity. In fact, as I said last time also, some of the competitive intensity or the, what should I say? The, the banks' appetite and, enthusiasm for gold has, is not as much as there as we have seen last year.
Okay, sir. Sir, and my last question is on margins. So what would your outlook be? Because, margins have declined sequentially in the Q2 . So where do you see the cost of funds and yields both settle? And, what explains the kind of pressure on yields this quarter?
See, our, our yield in last year, same quarter was, or our interest spread was 9.4%. In the Q4 , it was 10%, 10.4. In Q1 , it is 9.67, and now it is 9.19. So we expect to maintain the yield around this, this level. 9% level is what we should be able to maintain. That's the interest spread. So there is no pressure on yields, et cetera, but then as the book grows, definitely, the yields cannot, the spread cannot go up substantially, but we will be able to maintain this 9%-10% yields going spread going forward also.
Adding to what MD sir has mentioned, you know, you might be knowing that our, you know, our policy is to derecognize the interest accrual once an account becomes an NPA. So there has been an increase in the NPA. Of course, we had sold a certain portion of the portfolio to ARCs, but, you know, whatever new NPAs have happened, to that extent, the interest reversals have happened. So this has also, this is also a reason why the yields is slightly lower. Otherwise, probably it would have been more closer to the, you know, numbers which we had seen in Q1 .
Okay, thank you.
Thank you.
Nuvama, Nuvama.
The next question is from the line of Nischint Chawathe from Kotak Institutional Equities. Please go ahead.
Hi. Thanks for taking my question. Just curious, you know, on this ARC sale, how much would you have sold, and what would be the, you know, financial implication of this transaction?
The amount of loans sold to the ARCs, INR 700 crore. The main reason for this is Muthoot has always maintained a customer friendly policy with regard to its gold loan customers. So when technically a loan becomes an NPA, maybe 90 days after the due date, it becomes an NPA in our books, and we have to maintain the NPA rates also. So we have to either auction the gold or the customer is not coming and he's requesting for more time, we are unable to give him the time because if we give him the time, the NPA will go up. So in order to reduce the NPA to manageable or reasonable level, we sold the portfolio to the ARC.
But in this case also, the customer's gold is not auctioned. He gets definitely better time to release the, some more time to release the gold. Otherwise, the option would have been to auction the gold. So as I said earlier, our stated policy is that we will be a more customer friendly company and try to retain the gold as far as we have come to retain it in the ARC books. Now, although we had, we had given to the ARC INR 700 crore, as of date, the, of the INR 700 crore, more than INR 250 crore have already been filled or-
INR 400 crores.
-for, is released. About INR 250 crores-INR 300 crores is already released as we speak. That's in the last one month, one and a half month, this much has already gone. So we were able to support so many customers. That definitely we would, we feel that it is a big thing, a big support we did to the customer, and all the transactions were done within the regulations, and we are, we are well within the regulations in that. So finally, when we look at it, we have been able to help our customers. We have been able to help our customers by not auctioning their gold. I'm sure in the next few months, the most of the 90% or 95 or 100% of these loans, the customers will, will take back.
Then when we look at what we have benefited from it, we have benefited from 88,000 customers whose gold we were not able to... We were, we did not have to auction. That is the reason for that, and then, that has been very much appreciated by our customers also.
So the transaction was secured, you know, perfectly in line with the, you know, RBI regulations. So it falls within the, you know, boundaries of the RBI regulations. And, you know, for us it was an innovative structure, and probably for the first time we have done, or the team actually we have done this transaction. So for us also, it was a learning experience. Certainly the most important thing is, you know, supporting the customers and the other benefit is we could manage NPAs at the same level. Of course, you know, our NPAs doesn't translate to a loss, but, you know, sometimes we have to provide comfort to some of the, you know, people who raises too many questions on, you know, NPA numbers.
That is the reason why we have done this transaction.
Finally, we were able to help 88,000 customers.
Okay.
I tell you, people are already benefited. They have released the gold and released the gold.
Okay.
I hope the position is clear.
No, no. So, this, this I think, helps actually to understand, you know, why you did this. But just a very simple point, I think I'm asking is, you know, what is the financial implication? I mean, is it kind of leading to some X crores of interest reversal? You know, because you mentioned that somewhere that you got subdued. Out of the INR 700 crore, how much assets do you have? Are they included in the, you know, loans and loan center management? I think, just, just, you know, basic accounting, which sort of, you know, helps us understand the financial implication of the transaction.
Okay. So the interest reversal, you know, has happened not because we have done an ARC transaction. Interest reversal happens the moment the loan account becomes an NPA. That is, we give the loan for a period of 12 months, three months from 12 months, that is after 15 months, anyway, the account gets classified as an NPA. So ARC transactions is, you know, done for transfer of NPA assets, not the good accounts. So since it's already reversed, you know, that reversal in any case would have happened. Then the transaction value has happened at part, you know, because it's the first time we were also not, you know, everybody, all parties have to be comfortable with the transaction, you know.
And, you know, there is a certain returns which go to the ARC, but, you know, that is only expense we incur because it was a 85-15% transaction. 15% is contributed by ARC. So to that extent, the ARC gets the benefit, that is only extra cost. But of course, you know, for us it's a very negligible amount. We will get our yield, as if it was there in our books.
So for the INR 600-odd crore, and I think it's INR 100 crore would be, I guess the, you know, ARC and, I guess you have here. So you would have, you know, you know, the assets of around INR 600-odd crore. So, that is something which is sitting in the loans and, I mean, sitting in the gold loan book, or is it outside the gold loan book?
So, it is under the investments, you know, because, as far as we have shown as a investment.
Not under the loan,
Not under the loan book.
So very technically, if I add that back, maybe your loan growth would have been maybe slightly.
You are right. You are right.
Yeah. So, you know, if we know, so the INR 1,478 crore of gold loan growth is after excluding the ARC sale. So if it, you know, grows with that, then probably the, you know, it is INR 2,100-odd crore.
Yeah, you are right.
But I'm not sure whether it is,
You have not made it in the quote. You can explain it later.
... Sure. Got it. This helps. Just one final question is, Oommen if you could give some outlook in terms of where the borrowing cost will be going second?
Sorry?
Borrowing cost.
So, borrowing cost, I think, you know, we are having around, you know, cost is around 8.46%. Most of the banks or the NBFCs are around 8.55%-8.6% level. I think, no, we will move towards 8.6%. You know, after that, I don't think there will not be much increase unless the banks also raises the interest rates.
Perfect. This answers all my questions. Thank you very much, and all the best.
Thank you, sir.
Thank you. The next question is the line of Piran Engineer from CLSA. Please go ahead.
Yeah, hi. Thanks for taking my question, and congrats on the quarter. Just for clarification on the previous question, this ARC sale happened in October, right?
No, September end.
September last.
September 27th, I think.
But our NPAs have still not gone down by INR 700 crore. It's down by only about 100 odd crore. So it basically means that there was a further slippage of INR 600 crore during the quarter?
Yes. Correct.
I think none of these are loan losses. Everywhere, actually, we are in the money.
No, no, which is fair, which is fair. And just wanted to understand, so that INR 250 crore-INR 300 crore, which has been recovered, how has that been recovered finally?
The customers come and release the gold.
So the customers... See, that is the entire purpose of doing the ARC sale, right? So if you wanted to reduce the NPA, we should have done the auctions before September 30th. Then it would have been a destructive process for the customers. You know, because of the gold price, you know, we are always in the money, and if we sell the gold jewelry, customer is going to lose the ornament, and of course, we give them the surplus, but for him, it is a loss of his personal ornament.
Of course.
Right, of course, he makes a request also to both, you know, not to auction it because of the collateral value.
All these customers, 250 customers, 250 crore customers, or about 20,000 customers, have come and taken back the gold, and they are so happy that they got back the gold.
No, I'm-
We just give the principal of interest.
So the gold stays with you in your vaults?
Yes, we keep it in the safe custody with us.
Yeah. Collection arrangement.
Collection does not go to the ARC.
Okay, so you're acting as a servicing agent for the ARC in such a case?
Correct. That's exactly.
Okay. So then just going back to the fundamental question, the customer, when he was NPA, was not paying you back, and then what changed that he suddenly started coming to pay you back? Just that you've told him that now we've sold your loan to an ARC, so he comes and pays you back?
No, sir. In the last year, after 12 months, every month, so many customers come and pay. These customers also would have paid in 16 months, 17 months, even otherwise, without doing anything. So he would have come and paid in 16 months. If it is not an NPA, he would have paid in the 16th or 17th month. Only that has happened now, nothing else has happened.
If, no, let's keep one case, you know. Suppose the customer was expecting the, you know, cash inflow to come in the 16th month, and had we auctioned, you know, at the end of 15th month, he would have lost the ornament. So we gave him some extra one-month time, you know, he could come and take back the ornament after repaying the, dues. So that is a benefit which we have passed on to the customers.
It's not that we have frightened him, saying that you have gone into ARC, et cetera. No. So otherwise, in normal course, he would have taken it in the 16th or 17th month.
That is what has happened, sir. One of the USP with Muthoot is always that, you talk to customers, that it will not be... The gold will not be, will not get easily auctioned. That's the use-
We give the maximum price. That is the-
We give the maximum price.
That is why, for customer perception about Muthoot, is that we are a very customer-friendly company as regards retaining his gold with us without auctioning it very fast. That's it.
Compared to other players, the complaints are very low because the auctions are less or, that is the one complaint that normally in a solo company. "You know, my gold is auctioned off, early without asking me, or I have asked you sometime, you didn't give it." That's the major reason for complaint.
True.
These customers are, this is a right example, 80,000 customers, and already 24,000 customers have taken back the gold. If we had auctioned off, they would have all ended up with a complaint, or they would have had a hard feeling.
Okay. No, sir, that I totally agree that, it's a customer-friendly organization. But the, and this is slightly digressing, but now how does the ARC then make profit if it is paying you the full value, the book value of the loan?
So they get the-
No, they put 15%. On 15%, they get a higher yield, which is actually the cost for us.
Okay, okay. Fair enough. Fair enough. Okay, that answers my question. Thank you, and all the very best.
Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants in this conference, we request you to limit your questions to two per participant only. The next question is from the line of Kunal Shah from Citig roup. Please go ahead.
Yeah. So sorry, once again, to touch upon in terms of the write-off, given that Stage Three is still more than four odd %, was this more kind of a one-off, or we will continue to resort to write-off in the coming quarter, maybe, sorry, sale to ARC in the coming quarters as well?
... We can do auctions also. We can, maybe persuade customers to come and take it back also. If it is required, we will do whatever is necessary in that.
Okay. So if there is a demand, maybe given 4%, Stage Three, we may continue with sale to ARCs?
No, it is, it is something, a decision which we need to take later.
Yeah.
As we go forward, we will have to take that decision.
Okay. This entire Stage Two movement, which is there, maybe almost from INR 1,400 crore-INR 700-odd crore, is what was there a forward flow into Stage Three? Because because there was increase of INR 600-odd crore in Stage Three. So were there hardly any upgrades coming through in this Stage Two accounts?
This quarter-
What is this? Upgrade and downgrade, sir, what is that?
No, no, I'm saying last quarter, Stage Two was INR 1,400 crore. Now it is down to INR 700 crore, but it seems larger part of it has flown into Stage Three. Okay, because even after selling to ARC, Stage Three is down only by 100 odd crore. So 600 odd crore would have moved from Stage Two. So then this Stage Two is not actually getting upgraded to Stage One, but it is more slipping into Stage Three. Would that be a fair assumption?
Okay. See, Kunal, two things I just want to know. See, because there are so many questions around this Stage Three, even after repeatedly we are saying that, no, our Stage Three doesn't translate loss. Too many questions, you know, everybody raises concern. Sometimes we are also, you know, worried that, you know, why, you know, the, the analyst community is asking too much questions on gold loans, NPAs. Even though, even though we don't incur a loss. So, you know, that is also one of the reasons why we have done this ARC transaction. Now, specifically, you are asking, you know, why there is no upgrade, you know, because our loans are all bullet repayment loans. There's no question of upgrade.
Okay.
We, you know, it's not an EMI product, right? So we give the loans for 12 months. After 12 months, he's required to repay the loan. Now, even if he-
Yeah, so if it gets repaid, okay. So either gets repaid or you may sell or maybe it will get recognized. Yeah.
So the only option is for him is to repay the principal and interest. There's no option of upgrade because it's not an EMI product.
Okay, okay. And one last question in terms of loans, this gold pledged, okay, so that will still exclude the sale to ARC amount, because you said, like, it still continues with you. So, gold pledge number will not have this sale to ARC, or it will still continue to have that sale to ARC? In tons, what we reflect as a gold pledge number, that will not have the sale to ARC number, no?
Correct. So the loan outstanding, which we have shown in our presentation and the balance sheet, doesn't include the ARC amount of INR 700 crore. It also doesn't, you know, the tonnage also does not include this, you know?
Okay, perfect. Yeah. Okay. So 183 tons doesn't include this,
Correct.
ARC sale. Okay, cool. Yeah. Thank you.
Thank you. The next question is from the line of Abhijit Tibrewal for Motilal Oswal. Please go ahead.
Yeah, good evening, sir. Sir, I mean, I think you've asked, answered this question a couple of times that, I mean, this ARC sale was done to kind of manage the NPAs and the fact that, I mean, you are not at a loss even if there are NPAs. Just wanted to understand, sir, why are these slippages happening? Why is it that customers and, and so many customers not kind of able to repay their gold loan at the end of 12 months, not able to pay them at the end of 15 months, and subsequent to that, they become an NPA? I mean, what is the underlying stress out there, which is not allowing customers to kind of pay, pay, repay their principal and interest and take their gold jewelry back?
Hello. This is actually, gold loans are actually a bullet repayment loan. They take a loan thinking that they can get some money in one month, two months, three months. The money, 95%, 96% of the customers, take back the gold before 12 months. Only 2%-3% of them go beyond one year. This is nothing new. This has been happening for decades. This is what happens in decades. Now, the question is whether we need to be harsh on these customers when options are poor. Why stress is happening? It is because they are in financial difficulty, that they have taken a gold loan, and they've taken. This is not an EMI loan, so he's waiting for a, for a, for full repayment together, bullet loan. So as and when they get the money back, they'll repay.
So there's nothing new that today there is some stress is happening. It's a market practice. So if finally he's not able to take it at all, then it will, it will get auctioned. That's all. So there is nothing new this time or any time. They are, they have always a cash flow issue. So when the cash flow issue is better, they'll take it back. When the cash flow issue is being extended, extended, et cetera, different customers, they may not be able to take back in the time of seven months or 10 months or 12 months. It may go to 13, 14, 15, 16, 17 months. That's what happens. There's nothing new here.
Got it.
No new-
Sir, essentially, the cash flow issue that the customers have is much more pronounced today vis-à-vis what they used to be in the past, because if you just look at the NPA numbers, I mean, they are elevated versus what they used to be in the past.
Many different customers, so many small, small, INR 50,000 loan, INR 20,000 loan customers, so, so nobody has-
We have around 84 lakh loan accounts, you know, 55 lakh customers, you know? We don't assess the cash flows of the borrower at the time of giving a loan. So probably a customer is coming and taking the loan for three months, you know. Another customer might be coming and expecting a cash flow to come in six months, you know. Another customer is expecting the cash flow to come in 11th month. So another customer might be expecting somewhere around 15 months, 16 months. We, you know, we are offering a standard product of 12 months, you know? Because we don't know the cash inflows, the customer is expecting that because his collateral is good, you know, he'll be able to repay when the cash inflow comes.
Now, you know, at different points of time, you know, we can be flexible to these customers by offering extra time. It is not a reflection of the stress of the borrower. You know, it is more because, you know, we are not aware about when his cash flows are going to happen for repayment.
Okay. My final question is again on your yield and spreads. So first is a data- keeping question. If you can just quantify the interest income reversal for this quarter and last quarter, so that we can calculate the yields excluding the interest income reversal. And sir, secondly, the second question again on spreads. Sir, somewhere we kind of acknowledge that, banks' enthusiasm for growth, you know, is not as high as last year, and maybe an inference of this is maybe the competitive intensity is also not high, not as high as last year. But at the same time, somewhere, sir, our yields or our spreads are moderating. I mean, this quarter, I mean, spreads of almost 9.2%, and where we earlier used to be spreads of 10%.
Somewhere, I think there is an acknowledgement that I'm seeing that spreads could now further decline to 9% as well.
So, of course, I know we generally don't give a guidance on the yield. No, mostly, we talk about a return asset. You know, we always give a guidance of around 4% return assets in the medium term, because we are able to generate a higher return assets in the short term, and we continue to focus on that. Because it's a short-term loan, because it's a large volume, small ticket price loans, you know, we have to offer you know, various schemes at different markets at a different rate. So, you know, the yield sometimes can vary. You know, customers are also becoming more knowledgeable about the interest rate, so they also expect a better deal from us.
We being the largest player, we always try to offer a better deal to the customers. So, we focus more on retaining the customers, because of which, you know, deals are supposed to come gradually over a period of time. During the short term, we have continued to generate a higher return assets. You know, I think this quarter it's around 5.8%, five point something return asset. So, in the current quarter also, you know, I think it is more or less in line with the Q1 , except for the reversal that happened. You're asking also on the interest reversal, I think it should be somewhere around INR 100-odd crore interest. I don't have the exact number. It should be around INR 100-odd crore reversals that happened.
So, that is the first thing. I think we are, will be able to maintain the same, levels of fee for some more time, you know. So that's why we give a medium-term, ROA target of around 4%, you know. Medium-term could be, you know, I think in maybe, about, you know, five years, you know. I think, you know, that is the minimum level, we try to, maintain, of course. Currently we have a higher ROA levels.
Got it. So what is INR 100 crore this quarter? What was the interest income reversal in the last quarter?
I don't have the exact numbers, but, you know, it should be-
No problem.
Around those levels.
Got it. No problem, sir. Thank you so much, and wish you and your team the very best.
Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants in this conference, we request you to limit your questions to one per participant only. The next question is from the line of Raghav Garg from Ambit Capital. Please go ahead.
Yeah. Hi, thanks for the opportunity, sir. Just wanted to hop on the same question again, with respect to the decline in yields. So one of our larger peers, this quarter had seen, you know, stable to increasing yields on a quarter-on-quarter basis. We are given to understand that this is a product where one can exercise pricing powers since it's an emergency loan. So in that context, I wanted to understand whatever you are doing to retain customers, probably offering him a lower rate, is this more an outcome of the competitive intensity that we are seeing? Is that what it is? And then, my follow-up question would be, where do you see yields going, you know, from here on, at least for the next couple of quarters?
That's all. Thank you.
So if you look at this past six months, you know, the disbursements to new customers have been the highest, you know, in any first half of-
... you know, Muthoot Finance history. So we are getting a good number of new customers. Our focus is always on increasing the AUM through you know, new customer acquisition, as well as you know, you know, you know, win back of you know, existing customer base, who currently don't have a loan account. So that is our primary objective, you know? Of course, yield comes secondly, because we are currently generating a good return to you know, our stakeholders. So the focus you know certainly is on you know, increasing the AUM.
So anyway, to answer your question, our yield will not decline or change substantially. It will remain almost the same, maybe 10, 15 basis points here and there, that's all. Nothing more than.
Would you say there is some geographical color to the competitive intensity? Probably, south is one where you're witnessing a much higher level of competition, say from regional banks or some of the other players which are smaller than you. Is that the case?
No, no. No.
Okay. And just last question, so your gross loans under management, INR 675 billion, that you've reported on page 32 of the presentation, that does not include the portfolio sales, right, of INR 700 crore?
Yeah, it does not include ARC sales. Yeah.
Okay. Sure. Thank you. That's all from my side. Thanks.
Thank you. The next question is on the line of Shubhranshu Mishra from Systematix Capital. Please go ahead.
Hi, sir. Thank you for the opportunity. The first one is around what is the quantum of interest reversal? The second is what prompted us to do this ARC sale? This is the first of its own kind. And any which way we are, you know, negotiating with the customers to come and get their gold loans gold collateral back, which we used to do any which ways using auctions. So why did we choose this path of ARC sale and not doing auctions? What was the thought behind that, and what is the quantum of interest reversal? Thanks.
I think you were not there in the earlier... We had explained all this in the earlier discussion.
You see-
Earlier questions, we actually fully answered why we did this, et cetera. It's available there. Anyway, to tell it quickly, during the ARC transaction, we are able to retain the gold of the customer who has requested not to auction, so that you are not able to auction it. We don't need to auction it. Auctioning means the customer loses the gold, his precious item is lost. We are actually giving a very good customer, what should be the customer-friendly approach for which so many customers have appreciated us.
What is the quantum of interest reversal, sir?
Earlier I had given this reply. I think it should be around INR 100 crore, you know? I don't have the exact numbers.
Sure. Thanks.
Thank you. The next question is on the line of Mona Khetan from Dolat Capital. Please go ahead.
Yeah. Hi, sir, good evening. So, I had this question on the yield. So essentially, you know, at a previous call, you had indicated that, with rise in cost of funds, you will eventually have, you know, higher yields as well, or rather you'll pass on some of the interest rate hike to customers. So have we seen anything? And, could you give some color to the extent of lending rate hikes, if anything?
There was no substantial hike in the cost. Only when there's a substantial hike, we need to pass it on to customers. It's only a few basis points hike, so we thought we could absorb ourselves.
Okay. So there is nothing in the pipeline in terms of rise in... Because H1, we've seen about 45 basis rise in lending rates, sorry, cost of funds.
No, I, I think our CFO will explain also. We don't see a big spike in the lending rates going and the borrowing costs going forward. It will be almost the same, maybe small 10-15 basis points, that's all.
Okay.
All right.
And, okay, so just in one of the previous questions, you mentioned that, the interest, the decline in, you know, the lending yields that you have this quarter, it's not, probably because of the interest reversals, because, the NPA rise did not happen this quarter. So what is, resulting in this, yield decline for us? Is it the lower, rates offered to customers to retain them?
So these are all short-term loans we do for, the loan period is usually three months. People take back the loan in three months, et cetera. New loans are given. Small, small interest variations happen. It's not that we are giving a 20-year loan, et cetera, to customers. So a very short-term loan is the loan period, which actually, the loan exists in our books. Sometimes it's only one month, two months, because it is so short, small variations in the interest will definitely affect the overall yields also. It's all small, very, very minor changes.
Sure. So your spread guidance now comes down to 9%-10%. Did I hear that right?
Ninety?
... The guidance on spread, does that come down to in the range of 9%-10% versus over 10% earlier?
Yeah, yeah. It was, it is always between 9-10 only. It is now on the lower side of nine to10. Sometimes it is on the higher side of nine to 10.
All right, sir. Thank you.
Thank you. The next question is in the line of Dhruv Saraf from Manyavar Family Office. Please go ahead.
Hi, sir, good evening. Just wanted some color on the run rate of disbursements. So for the last three quarters, what we've seen is in Q4 of FY 2023 and in Q1 of 2024, the average disbursement per quarter was around INR 50,000 crore plus in the gold loan portfolio. And if I were to just backcast it, this quarter we are around INR 30,000-INR 32,000 crore. So can you just shed some light as to what's happened and why is this run rate come down, despite gold prices kind of not being stable and where they were?
So, you know, if you look at last year, you know, we had a lower growth because of various reasons. In the Q1 , we were focusing on migrating the teaser rate customers. We also had a little bit of options during the Q1 . Q2 , you know, we had some challenges because, you know, we saw a lot of unhealthy practices by banks, which were affecting, you know, our business opportunities. We don't want to elaborate on what banks were doing, you know, and currently doing. The Q3 , we again started seeing growth. Because we lost almost three quarters, you know, we went all out to the market in the Q4 , you know, and-
Mm-hmm.
You know, we did an aggressive scaling up of the book. We did a lot of, you know, top-ups. In the Q1 also, we continued that momentum. This quarter also we did, and we could do about 1,000, you know, close to 1,000 million of growth, which is not a bad growth. And, you know, that is the growth path we have followed in probably the last 12-18 months. So if you do top up, you know, what happens is, you know, it's actually like a rollover of the existing loan. So because of this, the advances sometimes it will be higher.
Sure, sure. Thank you.
Thank you. Ladies and gentlemen, that is the last question. I now hand the conference over to Ms. Shweta Daptardar for closing comments.
Thank you, Lizann. On behalf of Elara Securities Limited, we thank the management of Muthoot Finance to provide us the opportunity to host the earnings call. Thank you, team. Thank you all.
Thank you, Shweta. Thank you, everyone.
Thank you. Thank you all.
Thank you, members of the management team. Ladies and gentlemen, on behalf of Elara Securities Private Limited, that concludes this conference call. We thank you for joining us, and you may now disconnect your lines. Thank you.