Muthoot Finance says rating upgrade is long overdue

KOCHI: Muthoot Finance Ltd, Kerala’s most profitable and the largest financial institution in terms of market capitalisation, believes it deserves better ratings than it currently enjoys from the domestic rating agencies.

“A rating upgrade is long overdue. The reasons why it doesn’t yet happen are unknown to us. We have achieved significantly on all parameters concerned, whether it be business volume, profitability or asset quality,” said Oommen K Mammen, the CFO of the company, while responding to a query on the topic from one of the analysts at a conference call session recently

While the commercial paper issued by the company enjoys A1 rating from both CRISL and ICRA, the debentures and subordinate debt raised by the company are conferred AA ratings by these domestic rating companies.

“A good thing is that in January, CRISIL revised our outlook, and hence we are hopeful that soon we will hear good news from these agencies on the ratings front,” he added.

The consolidated loan assets for the company stand at about Rs43,500 crore whereas the standalone book stands at around Rs38,500 crore as of December end. The company sees tremendous growth potential for the gold loan going forward, according to company officials.

Ratings are very crucial for financial services companies like Muthoot Finance that depend a lot on markets for their fund requirements in the form of lines of credit from banks or NCDs as the pricing is essentially impacted by ratings.

More importantly, the gold loan major has entered the international market for dollar funds recently with a medium term note (MTN) issue, which was priced at 6.125 per cent.

The credentials of the company are very strong that these MTNs are now traded in the international market at a premium of around 30 per cent and upwards, pushing the yield down to around 4.38 per cent (as of last week). The company is hopeful that the future issues can attract better pricing.

Though the company has plans to increase its branch network at an annual rate of 100 to 200 branches, the company seems to be apathetic about its Kerala operations as the per-branch business in the State is about one-third of the country average and the business volume there accounts for only three or four per cent.

On the liquidity front, the CFO said the banks are now very supportive on opening lines of credit, but with the new credit model followed by the banks, the loans need to be drawn on sanctioning.

The company is very serious about growing the business of ‘gold loans at doorsteps’  a model that has driven several fintech companies into the gold loan market in collaboration with banks.








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