Belstar Microfinance Ltd, controlled by Muthoot Finance, is launching its gold loan business to diversify its books and reduce risks in its portfolio. Diversification will create a new source of revenue that helps companies ahead of their initial public offerings (IPOs).
“We want to diversify the portfolio of our microfinance business with a maximum limit of 25% of the total AUM (assets managed)” said George Muthoot, managing director of Muthoot Finance.
Chennai-based microfinance institution (MFI) manages assets ₹87.03 million, published net profit ₹At the end of December 2024, 240 million ₹The corresponding period a year ago was 10,03 million.
As of December 31, Belstar has 1,224 branches and 272 controlled regional offices, with presence in 19 states. Muthoot Finance owns 66.13% stake in Belstar Microfinance.
IPO plans held under industry pressure
The non-bank financial company has postponed its public listing plan for the next 3-4 quarters due to ongoing pressure from the MFI sector. Belstar has been approved by the Securities and Exchange Commission of India (SEBI) to initiate ₹10 million IPOs and ₹3 billion shares for sale.
Experts say diversifying it into the gold loan business ensures a stable source of income.
An official at an MFI company said: “Because the industry has been challenging. Microfinance costs have been a reason for the attention, which is why MFI wants to diversify into MSME, personal personal loans, etc.”
Interestingly, Muthoot Finance also hopes to transform its subsidiary Muthoot Money from a pure vehicle financing company to a gold loan company. Muthoot Finance management said in a call from its third-quarter analysts that there are nearly 950 branches currently.
Lenders withdraw gold business
“This year, we focused on the expansion of the branch network of Muthoot Money, a wholly owned subsidiary. So we have almost added about 800 branches in the year. Now, we are transforming Muthoot Money from a pure vehicle finance company to a gold loan company. We are worried that the vehicle financing business is too competitive and the company is at a lower price.
On Wednesday, Poonawalla Finance also announced its entry into the gold loan business to strengthen its operations in Level 2 and Level 3 cities.
Earlier this month, the Reserve Bank of India (RBI) issued a draft notice proposing measures to strengthen lending norms for gold decorations and jewelry. The RBI is considering improving the underwriting process, enhancing collateral management and ensuring proper use of funds.
The RBI recommends establishing a single borrower in the bank’s portfolio of gold loans as well as specific restrictions on sector caps. In addition, a mechanism for verifying the end use of loan funds was proposed, with a authorized loan-to-value ratio of 75%, and standards related to gold purity were also proposed.
