India’s Muthoot Financial retains stable asset quality, moderate profits

Credit costs have also been at a low 0.1% to 0.2% since March 2019.

India’s Muthoot Financial is expected to retain a stable performance over the next 12 to 18 months.

Its track record of providing loans against gold jewelry, alongside superior profitability and strong capital, will support its stability, Moody’s Investors Service said in a commentary.

Asset quality is supported by the collateralized nature of the company's loan book, the maximum 75% loan-to-value (LTV) restriction under the central bank's norms, as well as the company's ability to quickly liquidate the collateral if a borrower is unable to service the loan.

Credit costs have also been at a low 0.1% to 0.2% since March 2019.

However, asset quality for its non-gold loan segments is susceptible to weakness in the current operating environment, as evident by Muthoot’s increase in non-performing loans (NPLs) during the pandemic years. But Moody’s noted that these loans make up only a small portion of its loan book, limiting its impact.\

ALSO READ: Manappuram Finance reputation at risk amidst invention

Muthoot’s profitability has also moderate with an annualized return on assets of 4.9% in the first nine months of FY2023, compared with 5.6% in the year earlier. Net interest margin reportedly narrowed because of strong competition. 

Nevertheless, the company is still amongst the most profitable amongst Indian banks and non-bank finance companies Moody's rates, and its profitability is a key credit strength. 

Muthoot's funding also remains steady as the secured and highly liquid nature of its loans enables it to obtain funding from banks and debt investors, Moody’s said.