Kosamattam Finance Limited

Adequate risk management systems

KFL has put in place adequate credit-appraisal systems. The branch employees have been trained to appraise the quality of gold jewellery provided as security against loans by prospective borrowers, which is subsequently verified by the gold appraiser. The company has implemented systems for ensuring gold security and reducing custodial risks, including highly-secured vaults with dual control and insurance. The internal audit is conducted once every six months across the branches, covering disbursements, adherence to process, collection, gold stock, etc. Gold audits is conducted once in three months. Surprise audits and cash verification are also done in all the branches.

Moderate capitalisation levels; however, promoters have been infusing capital regularly to support growth

To support growth, the promoters have been infusing capital on a need basis over the years. The capital adequacy ratio (CAR) and Tier-I CAR, as on March 31, 2022, stood at 18.65% and 14.45%, respectively, as against 18.60% and 13.58%, respectively, as on March 31, 2021. During FY22, KFL raised capital of ₹58 crore by way of rights issue. The overall gearing of the company stood at 6.03x as on March 31, 2022, as against 6.68x as on March 31, 2021.

Stable profitability

The loan portfolio witnessed a growth of 15%, from ₹3,510 crore as on March 31, 2021, to ₹4,043 crore as on March 31, 2022. As on June 30, 2022, the loan portfolio stood at ₹4,163 crore. The portfolio per branch for gold loans has shown an improvement from ₹3.33 crore as on March 31, 2021, to ₹3.70 crore as on March 31, 2022. The net interest margin (NIM) declined to 5.95% in FY22 (PY: 6.11%) on account of auction loss during FY22 and competition in the market. The operating expenses to average total assets remained stable, at 3.30% in FY22 from 3.32% in FY21. The ROTA stood at 2.01% in FY22 (PY: 1.77%). During Q1FY22, the ROTA moderated to 1.32%.

Geographical concentration

The loan portfolio of KFL is concentrated towards Southern India. As on March 31, 2022, Tamil Nadu constituted around 55% of the total gold loan portfolio, followed by Kerala with 21%, Karnataka with 15%, and other states with 10%. The company has been making consistent efforts to increase the loan portfolio by way of improving the AUM per branch of the existing branches. However, the portfolio is expected to remain concentrated in South India over the medium term.

Intense competition in the gold loan business

Geographically, the gold loan financing industry is predominantly placed in Southern India, with an active interest of both, the banks and the large NBFCs operating out of this region. KFL faces heavy competition from larger players who are offering gold loans in the regions where the company operates.