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Muthoot Finance Ltd
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[Audio Gap]to all of you. Today, we have with us the management from Muthoot Finance represented by Mr. George Alexander Muthoot, who is the MD. And we have Oommen Mammen, who is the CFO. And we have Eapen Muthoot, who is the ED. And then we have George Alexander Muthoot Junior also who's the ED. And finally, we have Bijimon and Shanti also on the call. So thank you guys for taking out this time connecting the call.I would request George sir to give us some updates about how the quarter was, how the growth was, how the macro environment is and then we'll open the floor for questions. Over to you, George sir.
Thank you. We just had the Board meeting, just over. And this quarter has been good for Muthoot. Compared to quarter 3, this was a much better quarter. And I will now touch upon -- of course, you can now download it and see, but from my side, the consolidated loan assets has increased by 20% and today stands at INR 38,304 crores. And consolidated profit after-tax also increased by 14% year-on-year and has reached INR 2,103 crores.As far as the stand-alone assets, AUM is concerned, it has gone up by 18% year-on-year and now stands at INR 34,246 crores. And stand-alone profit, PAT, has gone up 11% and stands at INR 1,972 crores. So although this year we could have done a little more better had it not been for the issues which came up, not our issues probably, it is NBFC issues which came in, in quarter 3. So today, we are -- we had, had a good quarter, and I'm sure coming quarters also should be good.The branch network -- as far as the group branch is concerned, we have about 5,000 branches as of today. And we had targeted for the -- other than gold loan business to be 15% of our total assets. But there were some setback again to the home finance industry as a whole after September, with issues related to IL&FS and maybe a few other home finance companies also. So we have gone slow on home finance. So because of that, one of the reasons, our other than gold loan has not reached 15%, but it only just crossed 12%. Going forward, we should like to -- we would be looking at increasing that also.The Muthoot Finance, as I said, has done well and it is -- assets have increased by INR 1,776 crores in this year -- this quarter. The home finance has increased its portfolio to INR 1,908 crores as against the previous year, INR 1,459, an increase of 31%. We had targeted for a much higher disbursement and growth there. But as I said earlier, because of the issues post October, we have scaled down or rather consolidated our book and the growth was not as we had planned. But nevertheless, the loan portfolio increased, and our total revenue stands at INR 226 crores and profit after-tax of -- as against profit after...
INR 38 crores.
INR 38 crores. Regarding Belstar, as we said last time, it has also done well, and it has now got a new private equity investor also. We have invested our money into that. And today, our holding stands at 70%. So we increased our holding in that company to 30%. It has also done well. And probably if you need more clarifications on that, we can give you as we progress through the question and answer. The insurance brokers have also done well with profit after-tax of...
INR 15 crores.
INR 15 crores. That's also done well compared to maybe about INR 11 crores in the previous year.Sri Lankan subsidiary, it has also been under a little bit of issues here and there, and -- but it has also recorded a profit, but it has not reached the level which we had thought of. And this year, the profit after-tax is LKR 10 crores as against previous year's profit of LKR 18 crores.But we have also been informed by the -- rather we have found out -- rather we know that there have been no issues with the recent bombings and curfews, et cetera. Our branches, our business has not been affected. But having said that, the overall scenario in Sri Lanka is not that great because there are some days of curfews, et cetera earlier and probably the tourist arrivals also may come down. But since we are in the -- mainly focusing on gold loan business, we don't expect any issues there. Probably, the gold loan demand may also go up because of all these things. So that's a good Sri Lankan subsidiary.Now the new subsidiary, Muthoot Money, which is a wholly owned subsidiary, which is doing the vehicle finance business, presently in Telangana and Andhra Pradesh have also clocked -- they have increased their loan portfolio to INR 311 crores. And of course, it has been the first year, not -- 10 months of first operation, they have still been able to clock a very modest profit of less than INR 1 crore.We have also -- because the company has done well, Muthoot Finance also paid an interim dividend of 120%, that is INR 12 per share for the financial year '19. And we also made a public issue of debentures focusing on retail industries. See, Muthoot has been very -- the retail industries have been very happy about their investments in Muthoot Finance, and we have had a lot of retail NCD investors. Now we have done an issue of INR 709 crores in Muthoot Finance. And also we concluded another INR 300 crores issue again retail in NCDs with home fin, which was also successfully closed 3 days of that.As we speak, the next issue of INR 100 crores plus INR 500 crores [indiscernible] option is open for Muthoot Finance. And it was the second day of issue, and we have already crossed INR 100 crores of subscription in the first 2 days itself. So we are diversifying our funding. We are rather restarting our retail NCDs, so that going forward we should not have any issues for funding. As of date, we don't have any issues for funding also.Having said all this, we -- looking at the next year, we expect -- we think that in gold loan business, we should see a growth of 15% AUM. And if things are very good, depending on a little bit of the elections and what is the new party or old party's new ideas, et cetera, we would like to see what is there. But having said that, we should expect a 15% growth in AUM that is what we are targeting for next year.If things are positive for loans, et cetera, we may end up with a little more than 15% also. But our bottom lower estimate would be -- lower level would be about 15% growth in this. The other subsidiaries also have got their own targets, with the home finance, the microfinance and the other small subsidiaries also. And Muthoot Money is targeting about INR 850 crores of AUM by the end of this year. So overall, we see good demand for loans. And also because of the diversification of funding, which we are taking, we don't expect any issues there.We have been always -- also talking about the scenario with regard to the commercial paper also where we -- our company was able to demonstrate to the public and everybody that if need be, we can raise our own resources from our own loan customers. That is what we did in quarter 3. We reduced our LTV. And because of that, we were able to reduce our advances, and that brought in about INR 1,000 crores extra to the company, which we kept aside, only to demonstrate to the lenders whether it is CP market or the banks or any others or the bond market that we can raise the resources in which we demonstrated. So we were able to get much more support on the -- from the retail funds with regard to the commercial paper.And as of date, we have a commercial paper of around INR 4,000-plus crores. That means, we have only slightly increased our commercial paper outstanding compared to quarter 3. It shows that -- demonstrates that the mutual funds and others who are investing in our commercial paper are confident for our ALM and also confident of the business of Muthoot, so that has been on the positive side. And probably, going forward, we should see good business in all these areas.So with these things and, of course, our -- there are a lot of reports about our CSR activities also that are there in the presentation, I'm sure you would like to know that all these things with the Kerala floods, building houses for people, all assistance for poor people, all assistance for education, et cetera, we have been doing well. And the company expects good business and good days to come in the next year or so. With your support, I'm sure things will not -- happen as we have just planned.With this, I would conclude and probably leave the floor open for questions from the open participants. Thank you.
[Operator Instructions] The first question is from the line of Kunal Shah from Edelweiss.
Congratulations, good set of numbers. Firstly, in terms of the operating...
Can you be a little more louder, please?
First thing with respect to the OpEx. OpEx to AUM is now like 5.56% in this particular quarter. And if we look at all the line item space not only the employee side, employee side, there is significant rise, but besides that, if we look at it in terms of the directors remuneration or be it in terms of advertisements or business promotion, the jump has been quite high. So how should we do -- read all those expenses? And would we see the gain coming through in terms of the growth, looking at the growth which has been there in the business, promotion expense or advertisement and everything?
So all advertisements, business promotion, et cetera, it has only been advantageous to the company because not only we have been associated with the CSK, with the brand ambassador of The Chennai Super Kings as well as the brand ambassador with Amitabh Bachchan. I'm sure most of these, definitely, would have helped in our business and business growth. And for -- as for the expenses on the personnel side, et cetera, all the -- when the -- our salaries are all full expect -- our incentives and salaries are back to the business growth. So when we saw good business growth in Q4 and when we definitely did a good business growth, all the employees were also given much more incentives, so that must have been one of the reasons for the higher growth in the incentives. And all remuneration given to the employees and to the directors have also increased, definitely, because the company has also done well. Company is doing better in profit. So going forward also we would see that the income as well as the net interest margins and, finally, the profit is also growing.
Okay. So maybe but -- only like 20-odd percent kind of sequential rise in the employee cost. So is there any element of, let's say, nonrecurring in nature with respect to incentives? Or maybe some other benefits which are there?
Incentives are not -- these are all definitely nonrecurring. It depends on the business -- proportional to the business growth, so that keeps the employees charged.
So for the quarter, the growth is about INR 1,800 crores.
Sorry.
For the quarter, the increase in loan...
Gold loans.
Gold loans, it's about INR 1,800 crores. So for that, we paid reasonably good incentives to the employees also. So that is one of the reasons why the employee -- employment benefit expenses have gone up, and also probably the yearly incentives also for the branch performance have been considered here.
Okay. Sir, in terms of business promotion, maybe almost 48, 50 odd crores for this particular year, much higher than what we have seen over the last 9, 10 years, plus maybe directors remuneration, maybe INR 20 crores to almost INR 55 crores, INR 56 crores. Should we see this trend continuing? Or maybe it should stabilize and continue at the current level because the growth over the last 2 years have been quite substantial?
So there is...
And even in others -- even when you look at others line item, in fact, maybe there is slight jump even in this particular quarter, other expenses.
So last year, the directors remuneration was INR 43 crores. This year, it is INR 56 crores.
Yes. I see growth...
In the fourth quarter, last year, also we have paid the performance incentives to the directors. So that is -- if you look at the -- for the quarter, that is the reason why the directors remuneration have gone up, but otherwise cumulatively for the whole year, it is INR 56 crores versus INR 43 crores last year.
No, when business grows, all expenses should proportionately go up.
Okay. And secondly, in terms of the asset quality, so there is still the volatility which is there. We have seen some uptick in the stage III assets. So is it like-to-like? So even last quarter, it was like stage III and we have seen this rise. So anything to read into this volatility which has been there in this particular quarter?
There is no volatility there. As we've already been telling in the last 15 or 16 quarters the same thing, there is no problem of NPS or more than 90 days issues with the gold loans. And with this cross 90 days also it will -- we will definitely be able to recover our principal and interest. So what you see as 90 days plus is only people whom we have intentionally knowingly given more time to repay their loans because it's more of a good customer -- I will say customer service, customers comfort there. Otherwise, why do you -- why should we expect people to come and pledge their gold with us and pay 18%, 19% and 20% interest, where it need some -- certainly some -- not concessions, comfort with regard to repayment also. That we are getting and we are also happy. So let us not -- there is no need to look at in these things. And our loan losses is what we should be looking at, and that is what has been only INR 25 crores to INR 30 crores every year. So we have the soft-touch approach with regard to NPS, soft-touch approach. And that is why customers come back to us again and again for loans. They don't want to auction their gold for the first instance. And we are not a loser. We are only a benefit of that.
Okay. And lastly in terms of the commercial paper. So the proportion, maybe it was like INR 3,000-odd crores in September, now it's like INR 4,700-odd crores. So what is the rate at which we are borrowing maybe in the markets currently, particularly with respect to the commercial papers? And even in terms of what is the average funding cost and now the incremental funding cost on the overall borrowing?
So CP rates in the last 6 months, it has been fluctuating. So we are moving in, in line with the market. At the peak of all the troubles now, we have even paid 9.75 percentage. It has come down to 7.6 percentage. Again, it has gone up to 8%, 8.1%. Now we are also seeing some further reductions. So it keeps fluctuating. So we move along with the market. And since these are short term, we don't read too much into this expense. And the rating, total rating amount is about INR 5,000 crores. So we tend to restrict up to INR 5,000 crores.
Okay. And incremental cost of funding?
Incremental as of now?
Overall?
The average cost of funding is about 9.3 percentage. And I think it's -- incremental volume, we should see around 9.5 percentage.
Okay. It's around 9.5%.
The next question is from the line of Ashish Kumar from Infinity Alternatives.
And congratulations for a good set of numbers. And I'll go back to the -- what the previous caller asked, and I know historically we have managed it well. The jump in the stage III assets. So in terms of going forward, do you expect it to continue going higher? Or do you expect it to kind of start to come down?
See, if you look at it at the beginning of the year, it was about INR 1,300 crores. That's come down to INR 616 crores. It has gone up. But if you look at -- if you see the presentation, there is a third item where we have returned the bad debts written off. The amount is so insignificant. And what we have been explaining is that this stage III asset is never going to get converted to bad debts written off. And now just because it has gone up, we are not going to lose any income or we are going to lose any principal amount. So just because it has gone up slightly, it's not going to translate in losses. So we are not too much worried about these amounts being fluctuating in the short term.
Yes. Please understand that when these customers come to our branch and it crossed 12 months or even 12 plus 90 days, these customers come to our branch and tell the manager that please give me some more time to repay. And the branch manager feels that there is a valid request, we give a soft touch to him and probably because we know we are not going to lose any money.But please also understand, there are many other competitors in this business. So if somebody needs to come to Muthoot, you should feel that he is having a lot of comfort here. I can be very harsh or maybe very strict, go by the book and say, if you cross 12 months, I will auction your gold. Fine, it's fine, my NP will be 0. But next time, that fellow or his relatives will not come to Muthoot. He is coming because he's getting a little bit of consideration. He's not losing his gold and we are not suffering also. That is why we will do this. It is intentionally done. It is not something which is market driven. It is intentionally done by us looking at that, okay, we can take a risk on this, we can take a -- give him some more time. That is the beauty of this business. That is the decision of the branch manager. And today, as Oommen said, we have not lost anything. On the INR 33,000 crores, our write-off is only INR 25 crores, which is 0.001 percentage. There is no NPA loss in Muthoot -- in gold loan company -- in Muthoot gold loan company...
Should we budget in like 3% stage III assets going forward?
If it is...
Don't worry about this stage III as a percent. It can fluctuate. These are all decisions taken by managers at different points of time. We have seen this number going up to 5 percentage, which has come down to 1.91%. Now it has gone up to 2.8%, and it is fluctuating. The point we are trying to communicate is that these will not translate to a loss as can be seen from the numbers in the past.
Yes. Okay. And second question was in relation to the housing finance subsidiary. I know you have gone through in the last 6 months from a disbursement perspective. Has your stance changed? Or do you believe that you will wait -- like to wait for some more time before increasing the disbursement? What should we look at from a growth perspective in that and housing finance business?
No. I think probably the headwinds are behind us now. And this year, we will be back on track in terms of disbursements. So what we witnessed in quarter 3 and quarter 4 was a general lull in the market, where most of the housing finance companies have pulled back. Most of them are probably because of funding constraints. But the decision that we took was we were seeing some stress among some of the builders. So as and when we see that the quality of the builders are improving, we will be ramping up disbursements in those particular regions. So for the next 4 quarters, I think we can expect the numbers that we were aiming for last year.
So have these already started going out aggressively? Or we are still on hold, wait and watch because with the stress on the builders still continues to be high?
Right. So I wouldn't say we are holding back. At the same time, I wouldn't say we are aggressive. But in selected markets for selected builders, we fund loans to their customers. And apart from that, we have also shifted our focus towards the self-construction segment also so that -- because they are insulated from stress on builders. So this would be the strategy going ahead. We will pick and choose builders in regions where we are comfortable with and also focus more on the self-construction segment.
The next question is from the line of Shubhranshu Mishra from BOB Capital.
You gave an outlook of 15% AUM growth in the gold. How do we look at 15% growth? So how much of it would come from your core south market? And how much of it will come from the non-south market? That's my first question, sir.
Okay. Your first question -- no second question?
I have further questions, sir. First, if you could address this one.
Anyway, growth-wise -- proportionate growth-wise, we have seen a little better growth in non, maybe a tad better than south, but both will be growing.
No, sir, if you could quantify it. So 60% of your book is from the south. So south will grow at what rate? What's your expectation? And non-south, how much will it grow, as you can...
I think you just consider it equal because north had -- the MD is looking after north who is sitting next to me, so I don't want to give him any -- anything to talk by. So we'll grow both equally.
Both at 15%, you're saying?
Both at 50 -- yes, yes, 50% will come from the north, 50% will come from the south.
Okay. Sure, sir. And my second question is with respect to your cost of funds being at 9.5%. So how do we look at the spreads going forward? What is your forecast on this or your guidance for the spread for FY '20, sir?
See, we currently have a spread of about 11% to 12%. We would like to continue with that going forward also. If the cost comes down, our yield also will bring down. If the cost is going up again if by any chance, we'll -- definitely market will understand the cost is going, we'll increase our cost also. So we'll -- for us, we will try to be maintain our spreads at 11% to 12%.
Sure, sir. And in the present quarter as well, you have around 5% cash as a percentage of your balance sheet versus like a year ago. So is this a normal percentage that we should build into our models, 5% of cash for the rest few quarters? Or how do we look at cash as a percentage of your balance sheet?
Not necessary because we have unutilized bank lines, but what happens is towards the year-end the lenders expect us to drawdown the amount. So that's why sometimes, you'll see a higher bank balance coming through at the end of the month or even the end of the quarter.
No, sir, I'm just comparing it on a Y-o-Y basis, that's very steep, assuming this is to maintain liquidity because in the fourth quarter of FY '18, it was around 2% of the balance sheet size and this particular quarter it's 5%. So is it going to remain at 5% levels for the fiscal '20? Or is it going to come down to a different number? That's what I'm trying to understand.
Yes. As I said, it depends on the needs of a lender. So if they are insisting us to draw, sometimes we draw it. So in FY '18, probably they didn't insist on us, so we didn't draw it. This time, we have drawn slightly higher amount. And it's also partly due to the circumstances which the NBFCs are operating.
Right. So we should expect it to remain at similar level, sir? That's my simple question, sir.
Yes. Probably, you can take it that way.
The next question is from the line of Aarsh Desai from Vallum Capital Advisors.
My question was with regards to the RBI norm, which came out with regards to risk-weight assets of asset finances being linked to their credit rating. So have you seen some advantage from bank in terms of more banks wanting to fund us, so that kind of cost of funds coming down in that aspect?
As of now, maybe because of the current NBFC scenario, probably the banks have not started -- yes, not passing on those benefits. But probably, in the long run, we should see that benefit coming out.
All right. Sir, and my other question was with regards to what you said in terms of your OpEx, that your OpEx growth was largely driven to drive your loan growth. So is it fair to assume that operating leverage in terms of your cost to assets doesn't really go down to support the growth, so your OpEx should be growing fairly well with your asset growth?
In terms of the absolute amount, yes, otherwise, it should be somewhere around 4.5 percentage which we should try at least for the medium term.
Okay. And just one last data-keeping question. If you can give a number of gold loan customers this year versus how many they were last year?
So we don't -- so these are loan account numbers, so we have around 81 lakh loan accounts vis-à-vis last year 76 lakh loan accounts.
The next question is from the line of SivaKumar from Unifi Capital.
Sir, can you give the FY '20 AUM targets for the nongold subsidiaries?
Yes. Okay, okay. Home finance. No, no, AUM.
AUM, [ INR 1,975 crores. ]
Target?
Target, next year...
But lending of till INR 600 crores in the home finance and in the Belstar maybe an AUM growth of INR 600 crores. INR 600 crores?
On average.
INR 600 crores. And as I said earlier, in Muthoot Money from INR 300 crores to INR 800 crores, so INR 500 crores growth there. Home finance, we will do a disbursal of 1,600. Our AUM may grow by 1,300.
Sir, and your general commentary on the current liquidity crisis, which we're seeing in the markets. How are banks treating you when you ask for -- using of the bank limits that you have with the banks? And do you see a reflection of that in the competitive intensity coming down in the gold loan arena, which might be an advantage to Muthoot going forward?
Bank funding, certainly, fresh bank limits are coming. But there've been a lot of noise of when the -- all the NBFCs prices over there. So we've been meeting banks telling them not to see us along with other NBFCs. Gold loan company should be seen differently. To a large extent that has yielded results and certainly we are getting a rollover, fresh limits are coming. To that extent, of course, it is not as easy as was earlier, but we are getting fresh bank limits.
We didn't understand your question about this competition?
Yes. Because I'm coming to the point of view that there are other NBFC conglomerates which have been facing liquidity crunch. They have also been aggressive in the gold loan front. So now they would have been slowing down in terms of growing their AUM. So will that help you actually beat your own internal targets in gold loan area?
So if we see business growth for gold loan, that's our first priority, we will lap it up. Separately, we'll do everything possible to see that every last rupee of gold loan demand is met by us whenever possible. So no two questions on that. Or if there is some player going out of the market, we'll only be too happy.
And with it sequential growth of about 5.6% in Q4, sir, are you still sticking with the 15% growth target for FY '20?
We -- all -- everything in India is today, you cannot predict even more than 6 months and 5 months, et cetera. So if things are okay, normal, we will get 15% plus. I keep my fingers crossed about -- all these normal things in India, especially in the election result year.
Right. So 15% is the base case, and anything above that is more bonus.
Yes, yes, yes.
Right. Sir, and can we also expect credit cost to be low this year because it seems you have used the excess provisions for providing for stage III assets. Will the same trend continue in FY '20? And there will be less of credit costs in the P&L?
See, our credit cost this year is only INR 25 crores. In the P&L, the whole year, the credit cost is only INR 25 crores, INR 25 crores capital. Last year, it was INR 31 crores. This year, INR 25 crores. And most -- I think most of that is because of some burglary which happened, burglary, robbery.
I see. Sir, and I take it that the bad debts which have been written off, you will be still realizing the amount which is overdue in lieu of those launch, right? There won't be any write-off per se?
What you said, these are all stolen gold, thefts gold, et cetera. I don't think we're going to realize anything from this robbers, et cetera. That's gone. Understand there is no bad debt. These are all -- I told you this is spurious gold, stolen gold, burglary, theft, all those things, I don't think we're going to get back.
These are operational losses.
Operations, correct. They are bad debts, correct. That's the correct word, operational losses.
The next question is from the line of Deepak Agrawal from Impetus Advisors.
My query is answered. Thank you.
The next question is from the line of Nirmal Bari from Sameeksha Capital.
Congrats on the very good set of numbers. My first question is on the home finance business. If you can give a breakup of the loan book between home finance and builder finance and lapse...
So we have 100% home loan book in Muthoot home fin. Last year, we piloted loan against property in some regions. I think the loan against property, the entire business, is only about INR 3.5 crores. So that was just a pilot that we did in a few regions. But the remaining part of the INR 1,908 crores of AUM is pure home loans. We don't do any builder finance.
Okay. So this -- for an earlier question, you commented that we are seeing some stresses in the builder loans book.
It is -- what he said if he sees...
Yes. Yes. Let me clarify, see, we have an indirect exposure on the builders because we give loans to customers who are buying under construction apartment. So if the builder is under stress, in effect, through the second order effect, we are also affected. So we don't have any direct exposure, but because we give loans to customers who are buying under construction apartment, we are very choosy about which builders we fund through our customers.
Okay, sir. That is helpful. Sir, the second question is again on home finance. What is the incremental cost of borrowing that we are seeing at present?
So right now, it would be about 9.5% for our bank loans.
Okay. And do we see the spreads compressing going forward? Or will they remain at the similar 3%, 3.5% that we are seeing at present?
I think we can project the spread to remain at 3%, 3.5%.
Okay. And finally, for -- an earlier participant also asked on Belstar target for the current year. I didn't get that number. If you can please repeat?
We are taking some INR 600 crores of -- for this AUM increase next year, we have at INR 1,850 crores now, somewhere at 2,500 as planning.
The next question is from the line of Dipan Mehta from Elixir Equities.
Sir, my question relates to an earlier question asked about the competitive intensity, and given the shakeout that we placed through the NBFC, have you seen any visible reduction in the competitive intensity, sir?
I don't think so. There is still adequate -- sufficient competition everywhere. I've not seen very perceptible amount -- number of NBFCs going out of the market. But of course, we are still the leader. And to my knowledge, some others are not growing, but they are also still in the business, so we haven't still...
No, sir, in terms of inquiries, in terms of [indiscernible] or any of those parameters, say for example, a client, which normally would have gone to a competitor and now not able to get the loan and therefore come to you, not just in gold loan, but in some of the other nongold products as well?
See, in the gold loan segment, if you look at, we are almost 3x bigger than our nearest competitor, so -- but there is no significant competition coming in, but they are also there. So like them, there are several other players also present in the market. So all put together, they can -- they could be a competitive environment. And you need to keep in mind that there are enormous players in the market. Banks are also doing the business. So considering all facts, there are -- there is competition in the market. And we have not seen a significant reduction in this competition environment because we have not seen anyone significantly degrowing their book.
Sir, a more broader macro question, what specifically macro trends benefit the company's gold loan business? I mean if we could just comment upon that? Is it overall improvement in consumption pattern or CapEx cycle or I don't know what are the kind of factors that the top management looks at, if that's okay? These factors are now in place, these signals are now in place, so we would have better time going forward?
Actually, when there's credit demand -- credit demand should come when there is expansion in the working capital requirement. So when the economy is doing well, the demand for overall credit goes up and certainly proportionate demand for gold loan also goes up. So I think that is what we should be looking at. So there is some economic growth activity happening, people will require capital as funding and working capital, et cetera and what's best other than a gold loan to get it quickly.
Sir, and one last quick question is that in the non-gold loans, have you seen clearly that existing gold loan customers are now looking at nongold loan or some sort of a number, as you said, that maybe it's a 25% of the nongold customers were gold customers and now they also taken to the newer product with the company's offering directly also with subsidiaries. Any such analysis done for us to understand whether the synergies truly exist and they're playing out?
See -- you're finished?
Yes, sir.
Okay. Gold loan customer, we use them as maybe a reference point to do the [indiscernible] loan. Just because I give a home loan to a gold loan customer, he will not close his gold loan and he has made a home loan. He will still have the other one. Even if I -- I don't know about microfinance, but all the other things, they have taken addition to this. If you have it -- many of our customers may be having a personal loan not that because he is having a personal loan [indiscernible] the gold loan. He will draw from the gold loan also. He will draw from the personal loan also. He will take the housings loan. He will take everything. Not that because he is getting that, he will close the gold loan and keep the gold in his house. If he has gold in his house, he will bring it -- if not today, tomorrow, he will bring it and take very quick money from us. So what -- we use this data as a reference point for selling other products also to -- maybe the home loan or a vehicle loan, things like that.
So what -- is it fair to assume that a large portion of the nongold customers were earlier gold customers and now they've taken to the nongold products of the company of any large significant portion...
No, no, no, these customers still have a gold loan as well as the other loan. Both will continue simultaneously. They're all small gold loan customers. We have 50,000 here, he will have INR 1 lakh odd of vehicle loan, maybe some home loan also maybe he could [indiscernible] everything they'll have. They'll continue to hold the gold loan, no doubt about it.
[Operator Instructions] The next question is from the line of Nischint Chawathe from Kotak Securities.
Most of my questions have been answered, just one book-keeping question. One data point which you share in the call every time. What was the -- what is the coverage on stage I, II loans and the coverage in stage III loans?
Just give me a second. Listen, I'll come back to you. Any other questions from your end?
No, that's it. So whenever you get the data both for the fourth quarter of last year and this year, I think that would be helpful.
So for -- for stage I, we are -- we have considered PD of 10.96% and LGD of 13.29%, and stage I and stage II. Stage III, we have considered LGD of 13.29 percentage.
Yes. And what does this take to the coverage ratio now, actually?
Just trying to pull that sheet. Yes, okay. So stage I and stage II put together it is 1.52 percentage and stage III is 13.89 percentage.
And last year?
Last year...
Full quarter, 4Q '19. Yes.
Yes, last year, stage I and stage II, it is 1.5 percentage and stage III is 14.77 percentage.
The next question is from the line of Preethi RS from UTI Mutual Funds.
So congratulations on good quarter. So my question is on the updates on the new businesses, particularly...
I'm sorry, you're breaking ma'am.
Am I audible?
Yes, please go ahead.
So what has been the progress? And are you on track to launch in a full-fledged manner from the pilot basis in FY '20 or...
Come again?
What has been the progress on the...
Preethi, your audio is still breaking. You're requested to come in later, please.
I'll connect back, thanks.
The next question is from the line of Manish Bhandari from Vallum Capital.
Sir, is it fair to assume so that our gold loan ticket size has increased by 7% to 8% on a quarter-on-quarter basis?
For the whole year, it has -- just give me a second. For FY '18, it was INR 38,000. Now it is INR 41,000. And for...
38% to 41% year-on-year.
Sure. That's okay.
And in December, it was 39,500.
December was 39,000?
39,500.
Sure. So is it fair to assume that the SME distresses is causing this drive in the gold loan growth? Is it what the trend you have seen and that's the reason we have seen a 15% growth in the lending volumes, mix of value and volume?
See, it's very difficult to link it to the SME because at the end of the day, it is only a INR 40,000 loan. I don't think this will fall into that kind of a SME segment at all. But nevertheless -- but we -- these customers use it for the working capital purposes for their small businesses. It's very difficult to link it to a SME distress kind of matter.
Okay. And my next question was, would you have any data for the industry growth rate for FY 2019 as a whole? How much industry would have grown?
I don't think our nearest competitor has gone significantly in the last 1 year. That's my understanding. And most banks through mostly in the private sector lending.
Sure. And sir, my last question is regarding -- since we are seeing some dislocation on the funding market and we have 3 or 4 businesses line which are growing now, so is there -- and you are sitting on a lot of capital -- with an excess of capital, so is there a possibility for you to do a portfolio buyouts in various businesses? And is that option available to you to deploy the capital?
Portfolio buyout opportunity is certainly there, so we have to look at the risk which comes along with that. And profit, we are going to create that. That is not going to give any significant advantage to us except that now we are going to leverage more. But certainly, if any good opportunity come, we can always look at buying those portfolios.
Sir, my last question is regarding some competitors in SFP have started making some murmurs over their introduction of the gold loan and pilots and then taking it to the -- their region level. So have you seen competition intensity from different set of players now coming up? And with their branch positioning, you have seen any kind of competition intensity now coming up from a different set of competitors, not from the existing ones?
Manish, we have seen this competition in the past also. No different players have tried to build this business. Some have been partially successful. The critical point is creating that network and in terms of managing the operational difficulties. We have not seen any single player being able to successfully implement that. At some point, they have stopped their growth in terms of building this business.
They lose interest in the business.
Yes. So perseverance is very important in this business -- growing this business.
The next question is from the line of Piran Engineer from Motilal Oswal Securities Limited.
Congrats on the quarter. I have a couple of questions. Firstly, why did our yields increase 120 bps quarter-on-quarter despite an increase in GNPLs?
So this quarter, the interest collections have been better, and that is one reason. Of course, probably the gold prices have also improved. So certainly, the collections have been better compared to -- we probably had to give a lower discounts or rebates to the customers. And the increase in the GNPL is not significant, it's only around INR 300 crores.
Okay. Do we recognize interest on our NPLs under [ index ]?
No, we don't recognize interest on stage III assets.
On entire NPL?
Yes.
Okay. And secondly, our 15% AUM growth target, what is the underlying assumption on gold prices?
There is no need to assume any gold price. Only we need to assume demand. If there is economic actual demand, gold loan will be there. Whatever be the price, if the price is low, our advance rate will be lower. If the price is right, the customers can be -- are eligible for more. So it is not dependent on the gold price. If the gold price goes up, our AUM will not go up. It's only a matter of CapEx requirement or small capital requirement for this loan, that's all.
Understood. And lastly, what percentage of our loan book comes from the INR 10 lakh plus product that we introduced a year or so back -- 1 year or 2 years back?
So it's not very significant. The average ticket size still continues to be INR 40,000 and majority of the loans are less than INR 2 lakhs.
The next question is from the line of Nihar Shah from New Mark Advisors.
Most of my questions have been answered. Just one data point. Even if I take a look at your gold AUM, what I've seen -- observed is that the growth in the south over the last 3 quarters has been pretty healthy in double digits. Whereas in the previous couple of years, it was in low single digits or even negative in some quarters. This is all on a year-on-year basis. Anything -- any changes that you're seeing in the south market that's driving better growth right now? Or is this just something which is -- nothing that's meaningful over here?
No, I don't think there is nothing very significant on that. But on a lighter note, it should be the CSK, which is happening in south. Chennai Super Kings and the enthusiasm of the staff, that's it. Otherwise, we don't see anything significant.
The next question is from the line of [ Rikesh Parikh ] from Barclays.
My question was relating to your Slide 15 on digital initiatives. So I just wanted to understand what is the cash and the digital payment, noncash payment disbursement advance level?
See, we -- all the transactions above INR 2 lakhs we give by -- kept for digital-only. And the acceptance is also the same thing. So wherever people have taken these loans, they get it by whatever you say, check or bank or digital, et cetera. For digital initiatives, we promote for customers to pair the interest rates, so online payment of interest through apps, et cetera. And also -- all those things is what we do digitally. And the people who have taken a loan and there is still more elbow room for borrowing more, they can also borrow it online also online good. So these are the digital initiatives we have. But all these small customers, 40%, 40%, 20%, et cetera, would rather come to the branch, take the money and go away. On average, it's only 40%.
40%, okay.
40%.
We have done a tie-up with DCB Bank for Gold Cash Card. So can you present how are the numbers and how many active cards are AUM under that?
We have initially started that program and really we are upgrading that program with some better features of maybe software application. If something is happening, maybe we relaunch the program. The initial program is meant to disburse around 5,000 cards only, and they are relaunching with [ 10,000... ]
Some additional features -- we are putting in some additional features and trying to relaunch it, but the earlier one did not click.
Next question is from the line of Kislay Upadhyay from Abakkus Asset Management.
Congratulations on the quarter. What is the cost of incremental borrowing for Muthoot Finance that we have recently raised from banks?
I think generally the incremental cost is around 9.5 plus or minus.
I have one question on the insurance broking division. Could you share the employee -- number of employees dedicated solely for insurance broking business and our plan going ahead?
I think we have about 200 people exclusively doing that. Most of the business comes through our branches.
Okay. And sir, any plans regarding adding employees in insurance broking division?
Anyway, it gives us -- it has given us about INR 11 crores of profit last year and INR 15 crores this year. I think we should look at that to reset. Small business, but quite profitable. It's only broking.
Ladies and gentlemen, that was the last question. I now hand the conference over to the management for the closing comments. Thank you, and over to you.
Thank you, participants. We are quite happy that we were able to answer your questions. And we -- again, investors with us, we will work together and see that our company does better in coming days. And I hope there will not be -- the political and economic scenario will also be conducive for growth for Muthoot Finance and subsidiaries also. So on that positive note, we will close this. Thank you, again, once again, for participating in this call.
Thank you, Digant.
Thank you. Thank you, Digant.
Thank you, everyone.