Shriram Finance said it will expand its gold loan business despite rising repayment issues. Executive Vice Chairman Umesh Revankar said, "Shriram's portfolio is small, but the opportunity is very large." The company blamed the rise in bad assets on a new repayment format, as many customers struggle with monthly payments.
Shriram Finance said it is sticking to its plan to expand gold lending, even as analysts pressed it on rising stage 2 and stage 3 assets in the segment, which management attributed to customers adjusting to a new repayment format.
On the second-quarter earnings call, Executive Vice Chairman Umesh Revankar said there was no change to the plan. An analyst had cited the company's earlier target of doubling the gold book over three years, from about 2.5% to 5% of total assets.
Analysts Press On Asset Quality
Abhishek Murarka of HSBC noted that stage 2 and stage 3 gold assets had risen sharply quarter-on-quarter for three quarters. Aditya Tiwari of Emkay Research pointed to instances of multiple borrowing against gold, and said some banks had deliberately moderated gold loan growth.
The gold book is about Rs 9,000 crore, according to the call.
Revankar said the company sees no challenge as long as customers are identified carefully and gold is valued properly. He declined to speak for the industry, saying Shriram's portfolio is small, but called the opportunity very large.
Management Blames Repayment Format
Revankar said the rise stems from the EMI and interest-servicing gold loans Shriram has introduced. Borrowers are used to bullet repayment, he said, and have not been servicing on time.
Those opting for EMI or interest payments can get a larger loan, and the company is stepping up customer communication to normalise behaviour.
Asked why delays were not arrested before reaching 90 days, he said Shriram can sell the gold, adding that it has no credit cost in gold loans. Chief Executive Parag Sharma said gold disbursements were Rs 5,443 crore, against Rs 5,153 crore in the previous quarter.
Loan-to-value on the book, including accrued interest, is around 72-73%, little changed from last quarter.
Profit after tax rose 59.37% to Rs 3,677 crore, and assets under management grew 16.96% to Rs 3,29,003 crore. Gross stage 3 was 4.65%, against 4.57% a year ago, while credit cost on assets rose to 2.03% from 1.68%.
Management has cut its AUM growth guidance to 15-17% from 18%, citing the West Asia war and a weak monsoon that ended at 87% of the long period average.
Revankar said credit cost could run 30-40 basis points above the 2% guidance for a quarter or two, with Maharashtra, Karnataka and Telangana the hardest hit regions.