One of India’s largest gold financiers, Manappuram Finance Ltd., disclosed that it had conducted gold auctions worth Rs 404 crore in the quarter ended March. In the first nine months of the financial year, the lender auctioned Rs 8 crore in gold, while it sold Rs 15 crore worth of collateral in corresponding quarter last year.
The disclosure of a step-up in gold auctions at Mannapuram confirms anecdotal reports of lenders stepping up sales of jewellery given as collateral to secure loans. A combination of factors such as the fall in the price of gold, income stress faced due to the Covid crisis and a temporary bar on bad loan classification could have led to the higher auctions, BloombergQuint reported earlier. In the case of banks, where higher loan-to-value ratios were permitted by the Reserve Bank of India temporarily, the sharp fall in gold prices led to margin calls as well.
In Manapurram’s case, the auctions helped the bank report gross non-performing asset ratio of under 2%. Typically, gold loan companies tend to auction off the collateral they collect, if the account becomes an NPA. This helps in quicker recoveries.
For the quarter ended March 2021, Manappuram Finance reported a net profit of Rs 468 crore, up 17.6% year-on-year. Net interest income for the company improved to Rs 1,098 crore, up 7.2% from a year ago.
Gold Auctions: High But Not The Highest
For the full year, Mannapuram Finance auctioned Rs 412 crore worth of gold to recover dues. This is higher than FY20 when Rs 116 crore in gold was auctioned, but in line with FY19 when Rs 419 crore was recovered through such sales.
The highest such sales by the lender were in FY16, when it sold Rs 1,932 crore in gold, analyst presentations showed.
As a result of the sales of gold to recover dues, the company’s outstanding gold loan portfolio contracted 5.6% quarter-on-quarter to Rs 19,100 crore, according to its analyst presentation for the January-March 2021 period. The sequential contraction in the book was largely due to the auctions, but was also because customers foreclosed loans worth Rs 500 crore during the fourth quarter.
On a year-on-year basis though, its loan book rose 12.4%.
According to Manappuram Finance, the gold tonnage it carried as collateral fell to 65.3 tonnes as on March 31 from 72.4 tonnes a year ago. Gold prices contracted 12% between December 2020 and March 2021.
The fall in prices raised the loan-to-value ratio to 71% during the fourth quarter from 63% before, Manappuram Finance said in its presentation.