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Muthoot Finance Ltd
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[Audio Gap] Thanks for taking this time out on a Wednesday afternoon.Today, we have with us Mr. George Alexander Muthoot, who is the MD. We have Oommen Mammen, who is the CFO. We also have Eapen Muthoot and George Alexander Muthoot Jr., who are both the executive directors of the company.So -- and since we are already in December. I would request George to take us through how the Q -- the second quarter was and how the last 2, 3 months were, and what future holds for us.So over to you, sir.
Thank you.So other than the persons who were mentioned, I will mention our Chief General Manager, Mr. KR Bijimon. And we have -- we also have Shanthi, our finance person -- media and finance support.So thank you.And to start with, the Q2 of Muthoot Finance as well as the subsidiaries have been good. All the numbers are there with you. We have got -- gone to very highest numbers as well as gross assets of about INR 35,900 crores and gold loan assets of INR 32,300 crores and probably maintained our profit also at INR 480 crore range. That is nice.Well, as far as the last 2 months -- concerned, probably from 20th of September, the growth has been flat. And year-to-date, the growth is flat. We expect -- we are seeing improvement, but as of late, if you ask me, the business growth is flat. But all other things are normal. Company is normal. Demand has also now come up. And we had restricted our lending in the last 2 -- from 20th -- 25th of September, for a month. After that, we have not restricted -- we have placed small restrictions on the lending by putting some cap on the amount, et cetera. Afterwards, now in the last 2, 3 weeks, it's back to normal, and we should see now business picking up. As far as business growth is concerned, there is demand -- good demand for loans, et cetera. And more than that, in the last 4 quarters, we have been able to enthuse and enrich our staff also very much to do -- to attract business for us and which we -- it is showing results. And together with that, we had the brand ambassadors also, Amitabh Bachchan and CSK, which also helped; new confidence both [ ambassadors ] were yesterday public.If you look at the NPAs, of course, as usual you all know -- being analysts, you all know that the NPAs of all finance companies are of no significance. It's only the loan loss which is significant. And for us, the loan loss has been only INR 7 crores in the last quarter -- INR 5 crores. I correct. Losses has been only INR 5 crores. And for the full -- last year, it was -- last half year, it was only INR 7 crores. So NPAs [ never associated ] loss for us. Nevertheless, even for technical purposes, we have been able to bring down the technical NPAs from high of about 7% to 1.91%. And I think, going forward also, because we have got rid of the 6 months' portfolio from our books -- almost fully from our books, we can continue to be 2% range going forward. We can always afford to keep 2%, [ below ], so it does not affect our portfolio, but certainly gives a lot of comfort to customers, so that we don't auction the gold -- their gold, very hastily. Since we are not losing any money, it -- if we can afford to, it is always better to keep some loans in the technical NPA. So that's been our policy. It has always proved good only for us in getting -- in raising good interest as well as getting the confidence and the comfort from of -- the comfort of the customers that their gold will not be just auctioned just like that. We give them the maximum time.Other than that, all the numbers are with you. Capital adequacy's around 26%; return on average equity also around that. Of course, [indiscernible].Yes, so I think -- yes, our subsidiaries have also done well. The housing finance has reached about [ 1,735 crores ]; and Belstar has [ grew ] portfolio to [ 1,381 ]. Housing financial end up with about [ 2,400 ] around. And Belstar should -- was about [ 1,900 ] by the end of the year.The Sri Lanka has about [ 1,100 crores ] of Sri Lankan money, which is almost equivalent to 500 crores [ of ringgit ]. It should reach about 600 crores by the end of the year. The insurance brokers have been -- done well. It has generated a profit after tax of INR 6 crores during this half year which has to [indiscernible] because we have to [ pay ] INR 6 crores to the insurance brokers have been able to do.We have -- in the last 2 months -- last 2 months or rather October 1, we started a 100% subsidiary of this Muthoot money, which is doing the retail finance business, used car, new car, used commercial in Hyderabad. It is based out of Hyderabad, and we're doing business in Telangana and Andhra Pradesh, just started. The full team is onboard. They have around INR 100 crores of portfolio as of now. We have also started a salary personal loan. It's about 1.5 years since we started, but we have been very, very cautious, doing baby steps only, slowly we have taken. The portfolio has done extremely well over the last 1.5 years. It has about [ 60 crores ] of outstanding as of date, but now we have taken new people onboard. And it is working out of Bangalore. So that is now -- presently, it is doing business in South India. It's actually small loans, 1 lakh, 2 lakh, 3 lakh loans, to salaried people only -- salaried people only, it is doing well.So we start the other subsidiary diversifications which we are doing. [ Also ], loan is not a subsidiary. It is just a -- it was hedged in the books of Muthoot Finance itself.I think I'll stop there and probably take your clarifications, whatever you need, and we will be happy to be of help to you to understand things better.Thank you.
[Operator Instructions] The first question is from the line of Nirmal Bari from Sameeksha Capital.
Thanks for taking my question...
A little more louder, please.
Yes. Am I audible, no?
Yes, yes.
Yes. My first question is, sir, on the home finance business. This quarter, we have increased capital of [ INR 450 crores ] there. So home finance business was already adequately capitalized with 28% capital adequacy before that, so what was the reason for increasing additional capital? That is one. Secondly, if you can give the NIM for home finance business as well as talk of brief -- talking brief over the profile of customers as well as the profile of loans over there? Yes.
So I will let Eapen Alexander answer this question.
Yes. So we were touching about almost 7% leverage before we...
[indiscernible].
Sorry. 7x leverage before we made the capital infusion. And as a management call, we have decided to infuse equity [ 3x ], we reach around the figure of 7x, 7.5x. Also, we have made this infusion of INR 150 crores keeping in mind that we will be doing about -- we'll be touching an AUM of around INR 2,500 crores by the end of the year, which given the current scenario, we might have to bring it down a little bit, but we should be around that neighborhood once we complete March 31. Also, with regards to the NIMs, we -- roughly, we are able to have about 3%, 3.5% NIMs on our book for the housing loan portfolio. We only have 100% housing loan portfolio. There is no [ lack for ] construction finance. So at present, we have about 3.5% of NIMs.
Okay. And sir, going back to the initial comment. You said that, since September 20, the business has been relatively flat. So is this for the gold finance unit; or for the housing -- for the entire business, including housing finance and microfinance already? And...
So, what we said was for the gold loan finance.
Okay. And for the past 2 quarters, housing finance as well as microfinance has been growing quarter-on-quarter at around 10% AUM. So now if I recalculate the required rate based on what we have projected for the year, the rate comes out to be very high, around 18% growth, for the housing finance unit as well as the microfinance unit. So is that achievable? Or we are keeping it as a target with your expectation on...
This is achievable, it's our duty to reach that, so let us keep...
[indiscernible].
Okay. And sir, vehicle finance, how much ownership stake do we have? And when will it start getting consolidated with...
100% subsidiary.
But has it been consolidated in the current results?
So this happened in October end. So as of September 30, that is not a subsidiary.
Okay. So that will start happening from -- in the 20th -- under the [ February time ]. So -- and you know that the gold business is relatively short term and we may or may not be facing a liquidity [ crunch over that ], but under the 2 businesses, how well we have [ stated there ] and what's that service taking, especially in the housing finance business side, to ensure that the ALM -- and there is no significant ALM mismatch and that has [indiscernible].
We will be getting or we are getting sometimes, even now, so I don't think there will be any asset liability mismatch there. And as you also are seeing, we have sufficient capital also, so I think it's comfortable. And we should be able to see it through next 2 quarters also.
The next question is from the line of Parag Jariwala from White Oak Capital.
Sir, on the auto loan and the personal loan ventures which you have started, can you give us more detail in terms of what is the [ social ] models; whom we have hired? Where do you see this book in probably 2 or 3 years down the line? What are the kind of fees we are operating at and our expectation of profitability on these 2 businesses?
Yes. The vehicle finance business, I think it should be seen as the [ loss carry ] to finance business of other companies, and the rates and the customers will be the same. The same will be the salaried personnel also. So the people whom we have[ interviewed and taken ] and supplied those things we need to discuss that here. We have taken correctly thoroughly in both the business.
Okay, okay. And in terms of -- have you also infused some money in the microfinance business as well?
Yes, yes, yes. They had a capital raise.
Yes, they had a capital raise. And we have -- actually in, [indiscernible] also has also infused INR 65 crores. We also have infused INR 70 crores as of now. [ That improved ]...
Yes.
Okay. So there is no increase in stake there, right? I mean we have maintained our stake.
No. See we have reinfused the fund enough to maintain that same stake there as earlier.
Yes.
And we will be infusing a little more funds than that. Then the stake will go up by maybe 4% to 70% [ issue ].
So it is 66%
Yes, 66%...
We have infused capital to maintain it at 66% but we have an option to increase to 70%...
70 percentage.
Okay, okay. And sir, last thing. You have said that -- in last 2, 3 weeks, some people raised the [ investments ] and the growth has kind of from that. So can you give us some sense that whatever we have lost because of the tightening of the market or whatever was the reason, can we -- are we able to make it up probably in next 1 or 2 months? Or do you see that as a...
By March, we should see a 15% AUM growth, 15%-plus AUM growth, for gold loan business, by the end of March. We'll be able to reach that.
[Operator Instructions] The next question is from the line of Vaibhav Badjatya from HNI Investments.
I just wanted to ask, sir, slightly longer term...
You are not really audible.
Can you hear me now?
Yes. Yes.
Yes. Sir, just wanted to ask you a certain longer-term question on the business as a whole. In the gold loan business, we have a very, very good strategy which has given us a good competitive advantage in terms of being highly efficient and lowest intermediation costs. But in terms of our other businesses, I'm not able to understand that -- how we are able to -- how we will be able to compete in a highly crowded market, for example, in housing finance and microfinance where there are already well-entrenched competitors are there. I just wanted to understand your longer-term perspective on these 2 businesses. Or I just wanted to have your views on that.
The housing finance business, yes, it has competition, but remember that Muthoot Finance always has a very good customer base of -- we're in the affordable housing. And we have about [ 2 lakhs ] customers walking into our branches every day. And this being a 100% subsidiary, we get a lot of leads from these [ people ] and, yes, with -- we get a lot of leads from our own customers, our own [indiscernible] I think. That is going to help us in the long run. To date, the numbers are starting to come. Probably when our branches, our business also scales up, we will get more leads from these. And that will be a big advantage which we only have because the type of customers who take are the type of customers who take gold loans also. We are now in the affordable housing only.
Okay. So I mean, do you think that any kind of advantage that we have in our gold loan business, which is basically that growth of -- because of our high [ productivity ]? Can we repeat this in our other businesses or any business?
Actually, your voice is breaking, yes. Your voice is breaking...
Yes. Sorry for that, okay? I'm [indiscernible]. Can you -- okay, I will come back in the question queue. I have to reach the -- a better place, yes.
The next question is from the line of [ Binoy Shah ] from [ Light Star Capital ].
What was the guidance on the gold loan AUM?
I think it's 15% plus we should be able to reach.
And this is in spite of the slowdown.
This is -- we should be able to do it, yes. Slowdown was only for almost 1.5 months. I think, things have started clearing now.
[Operator Instructions] The next question is from the line of [ Shiv Kumar ] from [ Unified Capital ]
Yes. Sir, in terms of quarterly run rate, we see that the yield on loan assets has come down from 25 -- 21.35 to 20.69. Did you cut the interest rates of any of the loan segments?
The small variation which you see is just the normal variations only. The [ interest ] collections are very good. Sometimes, we get a little more of [indiscernible]. That's all, I think. We have not changed anything. We have not cut down any interest rates. We expect to always think about yield to be in the range of 21%, maybe plus or minus 5% -- 4% or 5%.
Okay. So for the second half, we can assume that the 21% will be the yield on loan assets, right, sir?
Yes, yes.
We have increased our lending rate because -- there was ongoing -- some increase in the borrowing costs, so we have made some increase in the lending rate. To that [ actually ] there will be some changes in the yield.
Okay. So this increase happened post Q2, sir. We'll see that effect in Q3?
Q3, a little, and Q4 a little more.
Yes. It is only for the incremental loan. Existing loans, we have not increased because gold loans are short term. That impact will come first. Probably you should see some [ loans ] that will impact coming in Q4.
Okay. And some visibility on the cost of borrowing. Sir, we see that on a sequential basis it has gone up, but how was it post Q2?
So Q1, it was 8.66 percentage. Q2, it is -- it has increased to 8.75%. Now in Q3, as you, everyone knows that, there was [indiscernible] and that there has been increase in the cost of borrowing, so rates have gone up for us also. That's why we have resorted to increasing the lending rats. So we should look at seeing the incremental costs of borrowing at around -- traditionally about 1 percentage. So the effect will come over a period of time because there are existing loans or existing dependents which have been taken at a lower rate in the past.
All right. So there's a 100 bps increase in cost of funding for Q3, right?
No, for the incremental borrowings. So the ultimate impact might be -- could be about -- maybe about 25 or 50 basis points. But it is only estimate.
Right, sir. And we expect that to be passed down to the customers?
Yes. That's what we have just told you, [ we don't have to ] increase the interest rates on gold loans, [indiscernible].
The next question is from the line of Vaibhav Badjatya from HNI Investments.
Yes. Sir, can you hear me now properly? Is my voice audible now?
Yes.
Yes, yes. So just continuing on my earlier question. So [indiscernible] in gold loan business we have an advantage of -- a little more advantage in Belstar, so obviously the advantage of the same. Do -- in housing finance business or in microfinance business, how can we offer more competitiveness to our customers, as compared to competitors? Because in gold loan business we can effectively do that because of our lower intermediation costs.
Yes, okay. So Vaibhav, this is Eapen here. I take care of the housing finance business. So just to answer your question on the housing finance: Housing finance subsidiary is a affordable housing finance subsidiary. The ticket size is around 10 lakhs. And we feel that there is a lot of commonalities between the customer segment of the housing finance as well as the gold loan. And we see a lot of opportunities wherein we can cross-sell to our existing gold loan customers as well as to the gold loan customers that we will acquire in the future also. So we've been very conscious about making sure that we use the support of our parent, both in terms of infrastructure as well as financial support in terms of reducing our cost of borrowing. We have also been able to successfully borrow at much lower rates than our peers who are also similar-sized housing finance companies. So there is a lot of synergies, both in terms of customers who we are acquiring for the housing finance company; as well as benefits that we are getting, because we are 100% subsidiary, in terms of costs of borrowing. So we feel that this is a good extension for us in terms of reaching out to our customers and giving them mortgages and housing loans. We have also been able to get a good credit rating because of our parentage. Today, the housing finance company is rated at par with Muthoot Finance. We have been upgraded to AA. So all these will make us further benefit from the fact that we are 100% subsidiary and that we have a strong parent. That said, we are not trying to replicate the gold loan business in housing finance. We have a completely separate management for this company. That company -- the management and the headquarters for this company is based in Bombay. So it is a different set of management. That said, we share a lot of infrastructures. We share a lot of branches, which allows us to expand very quickly and at a low-cost manner. If you take a look at our cost-to-income, also it is probably best in class. We have only 19% of cost-to-income ratio. So we are able to show much lower costs and be profitable from day 1. So this, we feel, is not a reckless expansion. It is a very carefully thought-out plan, and we feel that there is a lot of scope for us to grow.
Right, yes. But...
Excuse me. This is the operator. Mr. Badjatya, may we request you to come back in the queue for a follow-up, please?
Sure, not a problem.
The next question is from the line of Naresh Katariya from MoneyCurves Investment.
On the loan growth, I see that you have a target for -- on gold side for 15%. Did I hear that right, sir? So the goal is for a 15% loan growth in FY '19?
Yes, yes, yes.
So I see that we have already achieved 11% in H1. So are you seeing better traction -- from 1st April, from 31st March until now we are already up about 11% in rupee terms, not in tonnage terms. So would you see some slowdown? Are you seeing some slowdown in gold loan growth or the momentum of H1 is continuing? So I'm just trying to clarify the difference between these 2 figures.
We just wanted to give you a moderate number. We didn't want to give you higher expectations, that's all.
Got it, sir. That certainly helps. So if I understand it right, the momentum is reasonably good in gold loan?
Yes, yes.
Okay. One more question. Is -- there are a lot of smaller NBFCs also in gold loan business who have other business but they have a loan book compared to the 2 big ones which were exclusively -- almost exclusively on gold. With the tightness in liquidity availability, is that helping the bigger gold loan companies in terms of lesser competition from the smaller gold loan branches -- companies?
No, I don't think we have even factored any of these things into our growth plans and business plans, et cetera. The smaller gold loan companies have always been there. I don't think that we consider or take into account their business action. But we -- in the rural areas -- retail areas, moneylenders, et cetera, are most from where we get our incremental business, not from these small NBFCs.
Okay. The moneylenders who are unorganized one-person shops who may not have the liquidity availability to grow businesses?
Not because of their lack of liquidity. But over the years, lack of confidence, trust, et cetera. When a standard organized player comes, people generally [ steer ] from them. Not because they don't have liquidity, but it's just because of the customer's preference. When they see a Muthoot there, they would rather come to Muthoot than go to a moneylender. That's all. Not because of liquidity purposes.
The next question is from the line of Yash Agarwal from JM Financial.
Yes. Sir, I was wondering what the AUM target...
Excuse me, this is the operator...
A little louder, please.
Yes, I wanted to know what the AUM growth target is for home finance and microfinance and the auto portfolio for this year?
I think I told -- in the initial stages I told we -- for [ auto ] and home finance...
Sorry, I joined the call late, sir
We are targeting to reach around 2,400, 2,500. And in the microfinance, [ 1,900 ]. To reach [indiscernible].
So sir, you've seen about -- I think you expect about 25 to 50 basis increase in costs for the gold -- the holding -- parent company. What about the 2 subsidiaries? What sort of increase in costs are you seeing there? And are you considering to pass it on?
In microfinance, we don't see anything. But in housing finance, I think maybe there should be some increase, maybe for 50 bps, 75 bps increase. Both sides should be there. So we will have to also increase our rates by 50 bps, 75 bps. Both sides, costs as well as [ tax ].
And sir, the housing finance, I think our margins have come off I think from Q1 levels. Any particular reason for that in housing finance?
Margins have come off. I don't...
ROA? The return on assets?
Yes, overall margins seems to be a little down in the housing finance, particularly the subsidiary from [ 5.29% ] to 5.07%, so -- quarter-on-quarter.
[ 5.09% ] to 5.07%?
On the net interest margin?
Yes, yes, yes.
I think there is a -- well, minor variation is there but we are not experiencing any compression over there.
Okay. And I don't know if this question has been answered, any impact of the Kerala floods that you had on your book or...
No, no. Kerala floods, no sir.
The next question is from the line of Mithun Soni from GeeCee Investments.
Yes. You indicated the gold loan -- in gold loan gold business -- gold loan business what is the growth for FY '19. But if you have to take a sustainable growth for FY next 3 years, starting FY '19, FY '20, '21, what's the sustainable growth that is, in terms of branch expansion, AUM growth in the gold finance business?
Branch expansion's maybe about 200, 250 branches a year. That is within our control. But AUM growth, we would rather like to grow 15% plus every year. But again, as you see for many, turbulence come in between. So with that caveat I can say, if there is no such turbulence and disruptions in the market, we can grow 15% every year. But we have seen so many things coming every 1 year, 2 year, 3 year, whether it's demonetization, GST, [indiscernible] as a result of IL&FS, something will come. Every year, something will come. We are actually trying to factor that -- well, to deal with that. No, every year something comes.
Sir, when you say a 15% growth, you factor in, it will be primarily driven by increase in the gold which is handled by the company? Because I'm assuming that the prices remain flattish. Or are you also factoring in some amount of gold price increase because that affects our ticket size, in that how much gold we can -- how much we can lend?
No, I think we -- generally in the last 2 years plus, we have seen the gold price, et cetera, to be flat -- or to be flat, I think it's steady. We think -- we have not yet factored for any increase in gold price.
Okay. So without any -- so you believe and -- we will need a lot of productivity improvement in our existing branches. Do you feel that there should not be any variable there?
No, no, no. No issue because branches can handle -- today, our average business in a branch is about INR 7 crores. So any branch can handle INR 15 crores [ business ] also.
So an average branch can go up to INR 15 crores. That's what...
[ Several ] branches is INR 15 crores and INR 20 crores, so any branch can -- if there is business, it can handle up to INR 15 crores and INR 20 crores. No issue.
Okay, okay. And sir, on the -- between the home finance and MFI over the next 2 years, which segment do you feel will grow faster? Or any particular or both of them, how are we looking for both of them?
I don't know, as we see now, housing finance is a little higher than -- AUM is a little higher than microfinance. I think it should continue indefinitely.
The next question is from the line of [ Nitin Arora ], a retail investor.
I'm a retail investor, and a very proud investor in Muthoot Finance. I love your strategy of slowly building up the business very carefully, not jumping into it. Coming to my question, I noticed that you have so much cash reserve. I wonder if it's the right utilization of cash. Has the management ever considered buyback or increasing dividend for the shareholders -- minority shareholders?
First of all, we can't do buyback. Being an NBFC, we can't do buyback of shares. We are not permitted to do that. Second of all, about dividend, we also -- the same, I also did not get a dividend. I was not really happy. But then there is a [ time ] constraint that has postponed the dividend. I think there's a better sense in postponing the dividend.
Mr. Arora, do you have any further questions?
No, that's it.
The next question is from the line of [ Shetty Dipansel ] from Albatross Capital Advisors.
I just have a quick question about -- and you might have already answered it, about this Tier 2 capital, which kind of saw a downward slope in this particular quarter. Can you please elaborate on the reason and how do you sort of plan to mitigate this?
See we are already excess capitalized and Tier 2 capital is -- comes out of the subordinated debt or subordinated the business has taken in the past. And of course, subordinated comes with a cost. And because we have surplus in capital, we have not resorted to fresh sub debt borrowings. Rather, we thought of raising funds through the regular and normal entities. So that's why the impact of sub debt is coming down and which results in a lower Tier 2.
I hear you. So is it safe to say that although you have maintained a pleasing sale to capital adequacy ratio, is it safe to say that on an overall basis, it's going to sustain itself in the foreseeable future, sir?
On an overall business? Sorry, I didn't get you.
Yes, on an overall basis, is it safe to say that the capital adequacy ratio will continue to be in the vicinity of 26%, as it is visible from your presentation. And is it safe to say it's going to be like this? Or we can expect any kind of material changes with that?
See, it all depends on the growth. So as and when the growth rate improves, we'll be using this capital. Right now, the gearing is only 3x. As and when the leveraging moves to 4, 5 and 6., we should be using all this capital. And when we are closer to the regulatory requirement, we can always think about taking sub debt to support my Tier 2 capital. That is overall [ fund ]. Right now, we don't need to have a sub -- Tier 2 capital.
The next question is from the line of Mithun Soni from GeeCee Investments.
Sir, of our total borrowings, how much would be in form of CPs [indiscernible]?
So as of September, it is about 12 percentage.
12%?
Yes.
Okay. And how much would be the bonds for us?
Bonds will be about 35 percentage.
And what is the duration of these bonds, sir?
Sorry?
Duration, duration.
Duration will be between 2 to 3 years.
Between 2 to 3 years? Okay. And then I've got currently long-term bond rating is AA minus, right?
AA.
AA
Both CRISIL and ICRA.
CRISIL and ICRA, okay. And when we will applying for further grading upgrade? How much time do we need because we were just sort of graded recently, right?
It is not based on applying, they give it.
We apply every month. [indiscernible]
The next question is from the line of Ankit Agarwal from Centrum Broking.
Yes. I just wanted to understand, if I look at the gold loan AUM growth, it's around 17% this quarter. And if I look at the gold stock in tonnage terms, it's around 10.5%. And if I see previous quarter also, gold AUM growth was higher than the gold stock growth. So I just wanted to understand, is there an element of price performance here? Or have fees, some LTVs have been relaxed? As in, what is leading to this lower growth in gold stock? And if I -- and going ahead, should the 2 move in tandem? How should one look at it?
Generally, if the prices are exactly equal, it should move in tandem. But if there's some variations in price, because their borrowers will be eligible for a little more, the gold is -- so for the same gold. Or a little less for the same gold, the price. So that variation is always there. The variation which you saw will already be included.
But so in this quarter, we've definitely seen some benefit of gold prices moving up, right?
So we don't look at the tonnage and report -- running our business, we look at only the AUM growth. So suppose that the gold price goes up, the customer can -- he will be able to borrow more or he can get collect lower quantity of gold for a lesser loan amount.
But I believe these 2 should move in the same right -- in the same growth numbers or it's in tandem...
See there are different types of loans also. There are loans with very low loan to value. Where the interest rates are low, it is higher. So there is always a mix there, it's not exactly similar. But having said that, if the price is almost same, it should move favorably. The price exact, it should generally move in the same direction.
But in general, we don't depend on the gold price for increasing our portfolio. It is only an incidental benefit coming out of the process.
And when you say 15% growth on the AUM, you're talking about in volume terms. Can you grow the business by 15% [ and multiply ]...
Let us not talk about this gold business at all. We hold the price [indiscernible] the gold is [indiscernible]. That is not our gold. It is owned by somebody else and we are to return it. Our [indiscernible] would be -- with the gold loan AUM; and AUM, which we feel should grow by about 15%.
The next question is from the line of Dhirendra Tiwari from Antique Stockbroking.
Sir, since there is some time, I thought I'll ask one question. Sir, is it this time last 6 months, it is not as if the entire gold loan as a product is doing well for everyone. It is only for selected players where the growth has been very good. So I was just looking at some data that in the second quarter, the amount of gold loan which you have added is 10x more than what your next competitor has added, and it is maybe 4x more than all the 4 private sector banks have added. So there is something happening at our branches. Like, is it the Amitabh Bachchan effect? Is it something else? If you can just throw some light for all of us on this.
Amitabh Bachchan is one part. CSK is one part. But most important, actually, we have been infusing our staff, and they are also in the -- a little bit of a sales strategy mood. Earlier -- very much earlier, it was a pull business. Now it is coming back as a push business also because we need to do that. And I think the staff motivation is the most important in this. Our staff gets quite -- the staff gets good motivation and they are also very much incentivized for volume. Their activity is almost proportionately incentivized for volume; that's how we are able to maybe motivate our staff. That is the most important. And Amitabh Bachchan and CSK, more than motivating our customers, they are motivating our staff. They are proud to be part of that and they actually see a lot of strength and energy and maybe they see that this is a good company and we should grow it. That's what is actually really happening. They're also into a little bit of a sales mood and not simply waiting for customers. They [ follow through ] customers either through form of talk or sometimes even going out. Both have been better strategies for us. And of course, with Amitabh of course, has also helped.
Right. And with -- are we distributing insurance through a lot of our branches now, because the insurance broking business has done phenomenally well over the last 12 months, like volumes have been growing quarter-on-quarter.
Yes. We are doing insurance -- a lot of insurance selling to our customers. And probably we have been doing that quite some time. Now it has become 100% subsidiary of Muthoot, it's actually done extremely well. It is making a profit -- has made a good profit, about INR 6 crores or so in this year, that's [ net ] profit -- no capital invested.
Right, right. So one data question. Maybe Oommen can help. Just the auction, then the accrued interest for the quarter?
For the auction, INR 200 crores. And accrued interest is INR 1,336 crores.
Okay. There's just one question from one participant. And then, sir, you can just give your closing comments.
Thank you. The next question is from the line of Kislay Upadhyay from Abakkus Asset.
Could you give your guidance on the operational costs in FY '19. And is there any -- some view on branch expansion or other operation costs that we'd be incurring?
Branch expansion, as I just [indiscernible] doing about 200 to 250 branches a year. Our operation expense, definitely, the inflation is there, with the rents -- rents goes up, the staff costs goes up. But we try to maintain that. If it's more business per branch -- productivity in the branch. So if we had about INR 5 crores of average business about 2 years back, today it's about INR 7 crores plus in the branch. So that I think, reduces -- offsets some of the cost of the inflation of -- maybe the salary inflation, the rent inflation and other cost inflation. That is -- we have been -- I think we would -- rather, I haven't looked at the numbers exactly, as Oommen can tell you, but we would like to keep the OpEx percentage in control. Generally, gold loans are a high operation cost business because you have to deal with gold, small forms, packets, et cetera. So operation cost is high compared to other loans. But still we try to keep it low. And maybe think of not increasing the OpEx cost also.
Ladies and gentlemen, as there are no further questions from the participants, I would now like to hand the conference over to the management for closing comments.
So thank you, all participants. Thank you for listening patiently to us. We definitely need your support and also your guidance and questions every quarter. So please, we are thankful to you. So George Alexander, MD, is here. Mr. Eapen Alexander, Director of Housing Finance; Chief General Manager, KR Bijimon; Mr. Oommen, our CFO; and Shanthi, our VP of Finance. So thank you from our side. Good day to all of you.