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Gold price crash will have 'minimal' fallout: Muthoot Finance

Last Updated: Monday, April 15, 2013 - 23:55

Mumbai: With the company scrip getting battered following the slump in gold prices and amidst reports of RBI seeking loan value details, the largest gold loan player Muthoot Finance Monday sought to play down the impact of this on its business, saying it will have "minimal" fallout.

"Since we are financing only household jewellery, the impact of such fluctuations (in gold prices) is minimal," Muthoot Finance Managing Director George Alexander Muthoot said in a statement here.

A price fluctuation of 15-20 percent in gold prices is always factored in his company's business model, he said.

"Though gold price is an important factor, the business model should not be misunderstood as a business of financing of bullion or shares where mark to market could affect the repayment behaviour," he said.

Over the weekend, following the massive drop in gold prices, RBI has reportedly asked all gold loan companies to furnish details of their loan-to-value (LTV) ratios with a view to avoid a crisis in the financial system.

Last April, as gold prices kept shooting up, RBI had capped LTV ratio to 65 percent from a high 80-85 percent.

Stocks of gold loan companies, including Muthoot Finance, tanked as investors resorted to frantic selling because of a heavy dip in prices of the yellow metal.

The Muthoot scrip shed 13.13 percent to close at Rs 131.35 on the BSE, whose 30-share benchmark index gained 0.63 percent today.

Gold tumbled today by Rs 750 to Rs 27,600 per 10 gm and hit over 15-month low in New Delhi due to persistent selling, triggered by a heavy sell-off in global markets. In Mumbai, it tanked by Rs 1,330 to end at Rs 26,550 per 10 gm.

Muthoot gave a list of comforting factors for the company like 60 percent of the loans being under Rs 1 lakh, the repayment period being very narrow of up to 6 months, average ticket size of Rs 40,000 and 70 percent of the operations being in semi-urban and rural areas.

Additionally, the company follows a system of calling up borrowers to make sure they repay loan and each branch is set a monthly collection target, Muthoot said.

"These factors reduce abandonment of jewellery reducing the possible risk of gold price fall."


First Published: Monday, April 15, 2013 - 23:55
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