Reporting from DUBAI: Muthoot Finance reported an unusual recovery benefit of nearly Rs350 crore in the September quarter, driven largely by delinquent borrowers rushing to reclaim their pledged gold as prices surged.
Of this, more than Rs300 crore came from interest collected on NPA accounts, an income the company normally does not recognise until borrowers regularise their loans. The rest of the benefit came from churn in the loan book, as customers closed older loans and availed fresh ones at updated gold valuations and current tenors.
Muthoot Finance executives explained that the sharp rise in gold prices has altered borrower behaviour across the industry. When the underlying collateral becomes significantly more valuable, borrowers are far more motivated to clear overdue dues and retrieve their jewellery, reducing the likelihood of loss for lenders.
According to informed sources, all major gold loan companies are now seeing a marked increase in such redemptions, and auctions are expected to be minimal in the coming quarters because most borrowers prefer to pay up rather than risk losing their gold in a high-price environment.
The churn in the book refers to a pattern where borrowers repay existing loans – often overdue ones – and immediately take new loans at revised loan-to-value ratios that reflect the higher gold price.
This results in better yields for lenders, as older low-yielding loans are replaced by fresh, higher-priced ones.
The surge in these recoveries offered a temporary boost to Muthoot’s income this quarter. Even excluding this one-off support, the company’s operational performance remained strong: consolidated net profit for the quarter (Q2) jumped 87 per cent year-on-year to Rs1,136 crore, driven by a 58.5 per cent increase in net interest income to Rs3,596 crore.
Assets under management climbed to a record Rs81,880 crore, supported by steady demand for gold loans and improved asset quality indicators.
Industry watchers say the trend of elevated recoveries may continue as long as gold prices remain firm, ensuring that lenders remain comfortably protected and auctions stay unusually low.
