Annual Report 2019-20 ““ WeWe areare whatwhat wewe repeatedlyrepeatedly do.do. Excellence,Excellence, then,then, isis notnot anan act,act, butbut aa habit.”habit.” — Aristotle Cover thought FROM THE HOUSE OF MUTHOOT A seasoned kabaddi player knows the importance The Muthoot Group began its journey in 1887 in the of physical fitness, mental agility and endurance. remote village of Kozhencherry in Kerala. It was founded Just as a professional kho-kho player understands as a modest trading business in a region that was how crucial it is to remain sharp both in attack and geographically disadvantaged and lacking in mobility, in defence. Or a boat race participant knows that in land, resources, industry or favourable market conditions. order to win, harmony and technique must become an Over the past 133 years, the Group has grown into a instinct, rather than a conscious decision. These are flourishing conglomerate, reaching out into India’s small skills gained through years of discipline, dedication and large towns as well as its major cities through as many and practice. At Muthoot Finance, we have cultivated as 20 business divisions and 5,300+ branches. an array of skills over the past eight decades, which Muthoot Finance Limited (Muthoot Finance) is the are reflected in our everyday habits. flagship business of the Muthoot Group and India’s largest gold financing company. It is registered as a ‘Systemically Important Non-Deposit-Taking Non-Banking Contents Financial Company (NBFC-ND-SI)’ with the Reserve Bank Corporate Overview of India (RBI). Prelude 1 Chairman’s Address 2 FY20 HIGHLIGHTS We are what we repeatedly do TOTAL INCOME About Muthoot Finance 6 Milestones Along the Way 10 Standalone Performance Highlights 14 R97,072 mn Business Review 16 28% The skills we developed through actions Agile 26 PROFIT AFTER TAX Digital 28 Engaging 30 R31,690 mn Being responsible makes us better Our People 34 51% Our Communities 36 GROSS LOAN ASSETS2 Our Leadership 40 Statutory Reports R468,705 mn Report of the Board of Directors 46 Business Responsibility Report 82 22% Report on Corporate Governance 92 BASIC EARNINGS PER SHARE Management Discussion and Analysis 114 1 Consolidated figures Financial Statements 78.30 2 Principal amount of loan assets R Note: denotes y-o-y Standalone Financial Statements 128 percentage change. Form AOC-1 224 51% Consolidated Financial Statements 225 Forward-looking statement This report and other statements–written and oral–that we periodically make, may contain forward-looking statements that set out anticipated results based on the management’s plans and assumptions. We have tried wherever possible to identify such statements by using words such as ‘anticipate’, ‘estimate’, ‘expects’, ‘projects’, ‘intends’, ‘plans’, ‘believes’, and words of similar substance in connection with any discussion of future performance. We cannot guarantee that these forward-looking statements will be realised, although we believe we have been prudent in assumptions. The achievement of results is subject to risks, uncertainties and even inaccurate assumptions. Should known or unknown risks or uncertainties materialise or should underlying assumptions prove inaccurate, actual results could vary materially from those anticipated, estimated or projected. Readers should bear this in mind. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. Our guiding inspiration Our founder, Shri M. George Muthoot, envisioned the prospects of gold loan in India long back in 1939. His business insight and vision helped transform India’s gold loan business. Guided by his values, we have strengthened our reputation over the years and established ourselves as a trusted pan-India brand. Unchanging values in changing times “Let us not judge ourselves by the profit we make but by the trust and the confidence that people have in us. Let us cherish and nurture that trust and ensure that every person who deals with us, deals with the confidence that he will not be misguided but his interests will be carefully protected.” Late Shri M. George Muthoot Chairman’s Address Excellence is a continuous journey As an organisation with a social conscience, we are also playing our role in combating this crisis. And I hope, you are taking good care of the health and wellbeing of yourself and your family. An extremely challenging macro environment The Indian economy dealt with its own set of challenges in FY20, with GDP growth slowing down every quarter. Contraction in the auto sector and delays in the construction sector, along with subdued investment and private consumption, collectively translated into India recording its lowest growth rate in FY20 in over a decade. The Government of India and the Reserve Bank of India implemented counter measures to revive growth. Dear Shareholders, Non-Banking Financial Companies It gives me immense pleasure to (NBFCs) largely continued to take a present to you the Annual Report conservative stance towards lending, Profitability in conjunction of Muthoot Finance for FY20. Our preferring to shore up liquidity and with excellence has been extensive reach, deep understanding reduce exposure to low-margin of customer needs, efficiency, speed businesses. The RBI implemented our motto since inception. of service, and reliability continue several measures to strengthen Our sustained and quality to make us the preferred gold loan governance and risk oversight of financing company, even during NBFCs and open up new avenues growth over the years is these challenging times. This is a true for the companies to raise funds a testament to our ability reflection of our concerted efforts over and ensure their financial viability. the years to live our purpose – driving However, the onset of the COVID-19 to deliver excellence in financial inclusion and empowering pandemic at the end of the fourth everything we do. people across the social pyramid. quarter brought economic activities to a near halt, sending prospects of any That being said, India and the world immediate recovery to the backburner. are going through a crisis that has few parallels in recent history. What started as a health crisis with the Robust all-round outbreak of the novel coronavirus is performance now a full-blown economic one with Against this adverse backdrop in significant ramifications that impact FY20, Muthoot Finance increased its life and livelihoods. The resilience of consolidated total income by 28% businesses has been put to test. y-o-y to C97,072 millions. Consolidated At the same time, humanity’s collective profit after tax increased 51% y-o-y to spirit and ingenuity are on full display. C31,690 millions. Consolidated loan 2 Annual Report 2019-20 Corporate Overview Statutory Reports Financial Statements A major highlight from the year was the successful raising of $1 billion from international bond markets in two tranches. assets under management increased Its total loan portfolio stood at Profitability in conjunction with 22% y-o-y to C468,705 millions. Gold C5,090 millions, up 64% y-o-y, while excellence has been our motto loan assets under management also profits increased to C27 millions from since inception. Our sustained and registered a 21% y-o-y increase to just C3 millions in FY19. quality growth over the years is a C407,724 millions. testament to our ability to deliver A major highlight from the year was excellence in everything we do – Our housing finance subsidiary, the successful raising of $1 billion from conducting business with integrity Muthoot Homefin (India) Limited, saw international bond markets in two and transparency, enhancing income rise from C2,257 millions in tranches. The overwhelming response operational efficiency, and embracing FY19 to C2,876 millions, while profits to the fund raise is a resounding vote the latest technology. We also know, moderated to C318 millions. Loan of confidence by foreign investors in excellence is a moving target. We assets grew from C19,075 millions in our strong fundamentals and growth remain entrenched in our constant FY19 to C19,769 millions. The share of potential. The diversified borrowing pursuit of excellence, deepening our stage 3 assets in total loan assets was mix, coupled with the outstanding engagement with our customers, recorded at 1.71%. credit ratings received from all widening our base throughout India major ratings agencies, positions us Our microfinance arm, Belstar and innovating our offerings. well to achieve 15% growth in the Microfinance Limited, grew reasonably current fiscal. It would have been impossible to well, with loan assets increasing achieve what we have without the from C18,419 millions in FY19 to support of our employees, the C26,310 millions. Profits increased from Responsible in every sense guidance of our Board and the C729 millions in FY19 to C990 millions. True to our purpose of empowering confidence of our stakeholders. the underserved/unserved segments Muthoot Insurance Brokers Private I express my sincerest gratitude to of the society, we also focus Limited registered a premium you all. And I hope you will continue on inclusive development. Our collection of C3,232 millions in FY20, to be our pillar of strength in this community initiatives complement up from C2,676 millions in FY19. Total exciting journey. our financial inclusion agenda. We are policies sold increased to 2.8 millions committed to taking incremental steps Warm regards, from 2.2 millions in FY19. Profits stood to bring about a meaningful difference at C104 millions. to the lives of the less privileged by M. G. George Muthoot Our Sri Lankan subsidiary, Asset Asia enabling urgent medical care to those Chairman Finance Plc progressed well in FY20 in need, facilitating government efforts with loan assets growing at 8% y-o-y in rehabilitating victims of natural to C5,380 millions, of which gold loan disasters as well as the COVID-19 accounted for ~31%.