S&P revises rating outlook on Muthoot Finance to stable

At the same time, it has affirmed the BB long-term and B short-term issuer credit ratings on the non-bank lender.

With economic growth in India strengthening, the risk of material deterioration in credit costs for Muthoot has abated, the rating agency said in a statement.

The company’s overdue loans in its gold loans book – taken against household gold jewellery – have continued to decline. The Stage 2 and Stage 3 loans together stood at about 3% of total loans as of 30 June 2022, after peaking at 13% as of 30 Sept 2021.

“Along with the pickup in the economy, large-scale auctions have also supported the decline in overdue loans,” it said.

In the fiscal year ended 31 March 2022, Muthoot auctioned loans totalling to ₹5,200 crore (principal) for 950,000 borrowers, the highest in the past nine years.

“That said, eventual losses in this book should remain low, given the highly liquid nature of the gold collateral. Stress will likely remain high in the non-gold portfolio, especially in the micro finance business. But with the pickup in the economy, we expect the pressure on asset quality to start abating,” S&P Global Ratings said.

Although it expects Muthoot’s loan growth to moderate due to competition, the rating agency believes the company will remain a market leader in its niche gold loans segment.

“Despite pressure on margins, Muthoot is likely to continue to outperform its peers, in our view. Its net interest margin will remain significantly higher than that of other nonbank financial companies (NBFCs),” it said.

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