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He says applying for bank license is a natural step forward for the company. "If you are getting a banking license and access to deposits and hopefully some low-cost deposits also in the coming years, we should be able to reduce our cost substantially and we will be able to pass this on to our customers," he told CNBC-TV18.
Below is the verbatim transcript of George Alexander Muthoot's interview on CNBC-TV18
Q: I wanted to ask you a quick question with regard to your cost of finance at this point of time, what is it standing at this point of time?
A: We have two growth streams of finance. One is the listed non-convertible secured debentures and the other is the bank finance. The listed non-convertible debentures, we have recently issued at 12 percent. That is the cost of fund, 12 percent ranging from 10.5 to 12, average cost should be around 12 percent. We also have a second stream that is bank finance. We have alliance with about 30 different banks and the cost there ranges from 12 percent to 12.75 percent. So the funding cost should be remaining around 12-12.75 percent.
Q: What does that do to your margins if you are lending at 12 and that is a heightened cost of funds between 12-12.25. What are you making and therefore what are your margins?
A: At present, one time our rate of return on the loans were about 21, now it is at about 19 percent so we should be making around 7 percent.
Q: In terms of an interest differential but counting your costs what would it be in terms of a spread?
A: Spread should be around 4-5 percent.
Q: Let me come to gold prices itself, we are seeing a downward pressure on gold prices. What does that do to business for you both in terms of loan growth as well in terms of the cover you have in terms of collateral?
A: Yes, today the gold price in the international market has come down by about 30-35 percent. In the domestic market it has come down only by 10 percent. We need to talk only about a differential of 10 percent. Even otherwise we have very sufficient margin in the sense that we lend only 60 percent of the price of the gold. We don't take the making charges and also we give only on ornaments, we don't give on the commodity at all. There is always a sentiment of the ornament plus we keep a 40 percent margin and the fall which you have seen is only 10 percent in the domestic market.
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