Manappuram Finance Stepped Up Gold Auctions In Q4
Shoppers examine jewellery on display at a stall in Ahmedabad, Gujarat. (Photograph: Dhiraj Singh/Bloomberg)

Manappuram Finance Stepped Up Gold Auctions In Q4

One of India’s largest gold financiers, Manappuram Finance Ltd., disclosed that it had conducted gold auctions worth Rs 404 crore in the quarter ended March.

In the first nine months of the financial year, the lender auctioned Rs 8 crore in gold, while it sold Rs 15 crore worth of collateral in corresponding quarter last year.

The disclosure of a step-up in gold auctions at Mannapuram confirms anecdotal reports of lenders stepping up sales of jewellery given as collateral to secure loans. A combination of factors such as the fall in the price of gold, income stress faced due to the Covid crisis and a temporary bar on bad loan classification could have led to the higher auctions, BloombergQuint reported earlier. In the case of banks, where higher loan-to-value ratios were permitted by the Reserve Bank of India temporarily, the sharp fall in gold prices led to margin calls as well.

In Manappuram Finance’s case, the auctions helped the lender report gross non-performing asset ratio of under 2%. Typically, gold loan companies tend to auction off the collateral they collect, if the account becomes an NPA. This helps in quicker recoveries.

For the quarter ended March 2021, Manappuram Finance reported a net profit of Rs 468 crore, up 17.6% year-on-year. Net interest income for the company improved to Rs 1,098 crore, up 7.2% from a year ago.

Gold Auctions: High But Not The Highest

For the full year, Manappuram Finance auctioned Rs 412 crore worth of gold to recover dues. This is higher than FY20 when Rs 116 crore in gold was auctioned, but in line with FY19 when Rs 419 crore was recovered through such sales.

The highest such sales by the lender were in FY16, when it sold Rs 1,932 crore in gold, analyst presentations showed.

“The sharp fall in gold prices and the higher auctions this year have caused a contraction in the gold loan portfolio. During the last six months we have had to auction gold at the lowest prices,” VP Nandakumar, chief executive officer, Manappuram Finance told analysts over a conference call on Wednesday.

As a result of the sales of gold to recover dues, the company’s outstanding gold loan portfolio contracted 5.6% quarter-on-quarter to Rs 19,100 crore, according to its analyst presentation for the January-March 2021 period. The sequential contraction in the book was largely due to the auctions, but was also because customers foreclosed loans worth Rs 500 crore during the fourth quarter.

On a year-on-year basis though, its loan book rose 12.4%. Going ahead, the company is expecting higher gold loan demand from its micro, small and medium enterprise customers, as they look for capital to rebuild their businesses, Nandakumar said.

According to Manappuram Finance, the gold tonnage it carried as collateral fell to 65.3 tonnes as on March 31 from 72.4 tonnes a year ago. Gold prices contracted 12% between December 2020 and March 2021.

The fall in prices raised the loan-to-value ratio to 71% during the fourth quarter from 63% before, Manappuram Finance said in its presentation.

According to Nandakumar, the company is not worried about the rising competition from banks over the last few months. As of March 2021, cumulative bank loans against gold jewelry stood at Rs 60,464 crore, up 81.6% year-on-year. Large lenders including State Bank of India, Punjab National Bank, Canara Bank, among others have stepped up their gold loan books.

“If you look at their portfolio now, the principle on the loans itself is higher than the gold prices. So the higher NPAs will discourage them from continuing to lend aggressively,” Nandakumar told analysts.

In March 2020, the Reserve Bank of India had increased the maximum permission loan-to-value ratio on gold loans by banks to 90% from 75% earlier. The higher loan-to-value ratio was aimed at providing more gold loans to customers who are affected by the Covid-19 pandemic. The provision was withdrawn on March 31, 2021.

Manappuram Finance’s microfinance portfolio rose 8.8% year-on-year to Rs 5,985 crore. Collection efficiency under the microfinance portfolio dropped to 92-93% in April, as compared with 101% in March, according to Nandakumar. The company expects some amount of short term stress to emerge from the portfolio due to the Covid restrictions which are currently in place.

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