MUMBAI: Kochi-based Muthoot Microfin is hopeful of better days ahead, even as the industry faces headwinds. The second largest micro lender expects the third interest rate reduction earlier last month to attract more customers and also improve collections.
The publicly listed company, with a loan book of R12,500 crore as of September 2024, lowered its lending rates for the third time this fiscal in December, by 25 bps to 23.05% for group loans and by 125 bps to 22.70% for third-party product loans.
This has crimped its margins to 13.24%. Earlier in January 2024, it had slashed the interest rate by 55 bps and then in July by 35 bps.
Sadaf Sayeed, chief executive of Muthoot Microfin, said that this steep rate reduction will crimp its margins but chose to pass on the benefits of cheaper funds to borrowers because with increased market borrowings our cost of funds has come down to 10.3% now.
Sayeed based his optimism on the comparatively smaller exposure they have to Bihar, which is the largest market for the industry and where the maximum delinquencies have been reported for many months now.
He also pointed to Eastern Uttar Pradesh, which is facing serious collection issues. For Muthoot, Tamil Nadu is the largest market with 23% of the overall business.
“Almost 50% of our loans are in the South where there is no over-leveraging and so collections are not affected, barring Tamil Nadu, the second biggest market for the industry in December due to the cyclone. Our exposure to Bihar is only 8%, and our collections are still 95-96%,” Sayeed told TNIE.
“Our biggest headache is Odisha and Jharkhand. In Odisha, the new BJP government has put on hold many freebies that the previous BJD government had launched in the run-up to the Assembly election. This has led to repayment delays now,” he said, adding Jharkhand has its own unique issues. On asset quality, he said overall Gross Non-Performing Assets (GNPA) stood at 2.7%, with non-southern markets reporting 3% and southern markets recording 2.5% in the second quarter.
He expects the number to remain at this level in the second half. Blaming negative real rural wages and the high inflation for the problems facing the industry, where many analysts say a third of the assets are stressed, he said the challenges will continue for some time. On the funding side, he said the Muthoot Pappachan Group company has bank loans worth R8,000 crore, forex loans worth R2,000 crore, including R900 crore from Standard Chartered Bank, and domestic debt through NCDs worth R350 crore.