MUMBAI: S&P Global Ratings has revised its rating outlook on Muthoot Finance Ltd from negative to stable, reflecting its expectation that the lender does better than its peers while maintaining low credit costs, good profitability and strong capitalization. Will continue to perform.
Also, it has reaffirmed BB long-term and B short-term issuer credit ratings on the non-bank lender.
The rating agency said in a statement that the risk of falling credit costs for Muthoot has been mitigated by strong economic growth in India.
Overdue loans in the company’s gold loan book against domestic gold ornaments continued to decline. Phase 2 and Phase 3 loans together accounted for about 3% of total loans as of 30 June 2022, which peaked at 13% as on 30 September 2021.
“The boom in the economy as well as the large scale auctions has supported the decline in overdue loans,” it said.
In the financial year ending March 31, 2022, Muthoot auctioned off total loans 5,200 crore (principal) to 950,000 borrowers, the highest in the last nine years.
“That said, given the highly liquid nature of gold collateral, the eventual losses in this book should remain low. Tensions will remain high in non-gold portfolios, especially in the microfinance business. But with the economy picking up, we We expect the pressure on asset quality to begin to ease,” S&P Global Ratings said.
While it expects Muthoot’s credit growth to moderate due to competition, the rating agency believes that the company will continue to be the market leader in its exclusive gold loan segment.
“Despite the pressure on margins, Muthoot is likely to continue to outperform his teammates, in our view. Its net interest margin will be much higher than that of other non-bank financial companies (NBFCs).”
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