Keyur Shah has been in the gold industry for the last 15 years. In his first stint of 7 years he was with the World Gold Council (WGC) till 2012. Herein, he headed the overall India Investment Portfolio (medallion, coins, bars, ETFs, funds, etc). In his current stint of over 7 years, Keyur Shah is CEO of Muthoot Exim which is the precious metal vertical of the Muthoot Pappachan Group (Blue Muthoot) that specialises in innovative products and offerings in the precious metal space. Customers have access to quality products that meet the highest standards, at an affordable price. The precious metals division was started by him from scratch. The foray into jewellery by this predominantly gold loan finance group has been his vision and it its 5th year, he has fructified his vision into reality. In a free-wheeling talk with Sanjiv Arole and R N Bhaskar, Keyur Shah spoke on a range of issues, from the state of the industry and how his firm has progressed over the last few years.
Tell us about the Muthoot Group
Muthoot Fincorp (Muthoot Pappachan Group) is the flagship company of Muthoot Pappachan Group (Blue Muthoot). Apart from being one of the largest gold loan company, it has diversified into Micro Finance, Two-wheeler loans, Housing Finance (limit of Rs.15 lakh), Muthoot Insurance and Muthoot Exim (precious metals division) was started by me.
Can you tell us more about your `baby’, Muthoot Exim Pvt Ltd and its activities
I am in charge of the precious metals business for the Muthoot Pappachan Group, Muthoot Exim Pvt Ltd. As a group we have been front runners in gold loans for over 3 decades having around 3600 outlets across the country.
When the customer comes to pledge their gold in our branches, we assess the purity and educate them further about always purchasing BIS hallmarked jewellery so as to avoid being cheated by the unorganized sector.
This is when we offer to sell them our jewellery which is superior in quality, assured purity with BIS hallmark and comes in tamper proof packaging. We also offer them easy payment terms.
It is a myth that Indians do not sell gold easily. Many buy jewellery when they need it, use it or even pledge it for short term financial requirement and sell it when they need cash.
It could be the farmer or worker or anyone requiring funds to tide over a financial need. It is an ongoing process as they are also protected from the vagaries of inflation, currency fluctuations, etc.
Our ticket size is just 1 gm - 4 gms at the entry level and since we cater to low income customers, the average ticket size is 4 gms. We even offer them the choice of EMI payments.
The customers could graduate to chains and even bangles but the limit would be around 10 gms. We even have some designs in the 20 gms range. We have 45% repeat customers and 1.5 lakh active customers. In our 5th year, we have serviced around 4 lakh customers.
Gold is in India’s culture and part of the economy. It is just not only an ornament of adornment but an asset class that can be monetised easily.
Kindly tell us about your activities at Muthoot Exim.
We have introduced Swarna Varsham for gold jewellery and coins through our 3600 stores across the country. In silver, we have Shwetha Varsham that caters to buyers of silver articles of 92.5% sterling silver and bars of 99.9% purity through 1200 stores in Tamil Nadu, Andhra Pradesh, Delhi, Maharashtra and Gujarat.
Our Swarna Varsham jewellery is hall marked and comes in a sealed packaging. We believe that through our quality products we have
revolutionized the lower end of the market at the entry level. We have made the buyer aware of the value of getting jewellery made of pure gold and silver.
We are trying to do or have managed to do what a famous brands brought to gold jewellery at the top end. Then, we have Muthoot Gold Points as well. In the last financial year our turnover from the precious metals division was Rs. 400 crore, we are now in our 5th year, but we managed to break even in the 2nd year of our entry into the market.
Kindly elaborate on Muthoot Gold Points
We have 12 gold collection centres and a mobile unit to collect scrap gold. Here we are concentrating in expanding to tier 2 and tier 3 towns and cities in the interiors of the country. We have a transparent system of pricing (our margin being 3%) and testing of scrap.
We then offer the scrap that is collected to refiners in open bidding process. We strictly follow KYC process and IT rules with no cash collected above Rs.10,000. Pan card and bank transfers wherever applicable.
Have you seen a lot of scrap this year due to floods in various parts of the country?
Nothing extraordinary about the amount of scrap. But, in Kerala last year after the unprecedented floods, we saw demand for gold shoot up as people realized the advantage of gold savings in times of distress.
Probably, gold fits the bill as it is indestructible (unlike paper money or even property papers or other investments), easy to carry and highly liquid.
With the gold price up by almost 20% since the beginning of the year and the high incidence of tax of 12.5% import duty plus 3% GST, what is your reading of the gold market?
It is true that demand for gold has tapered off as gold prices scaled to 6-year high levels in the international markets. Demand for gold would return once price stabilises.
Indian consumers actually feel vindicated when gold prices increase since it reinforces their belief in gold as an asset class. It is only about the sudden change in gold prices after which consumers wait and watch for prices to stabilise before they start purchasing again.
The GMS and the Sovereign Gold Bond appear to be going nowhere. The demands made by trade for a Gold Accumulation Plan, the Gold Bank with gold saving scheme, a Gold Spot Exchange, and the much awaited Gold Policy all seems to have been put on the back burner.
More needs to be done to make various schemes really work. Gold is in our culture, our economy and it is difficult to believe that Indians do not sell gold. We are in the business of gold, we see buying and selling of gold happening all the time almost seamlessly.
What needs to be done to make various schemes work is to find a proper interface between the banks and the customers for the SGB and the GMS as well. For the Sovereign Gold Bond, what is required is to make SGB open all times and take steps to develop a secondary market for the same.
The GMS needs more than just tinkering. One can appoint accredited jewelers and collectors of gold scrap to be the interface between banks and customers. Incentivise these players to collect gold from customers for the GMS.
The fire assay method of determining the purity of gold is both destructive and expensive (Rs.18 per article). We need a process that gives customers better returns than earlier and not insist on a perfect scheme from the word go. Let the process evolve. At the moment, we seem to be more interested in perfecting the process than getting schemes off the ground.
Do you have any remedy to get out of the current scenario?
Asking the government to reduce import duty on gold is not likely to yield the desired results since it is linked to CAD concerns. Hence, the way forward is recycling. Also, Gold Accumulation Plan should be introduced at the earliest.
One should be allowed to open a gold savings account wherein money can be deposited and converted to gold after a specified amount is reached. The account holder should get a gold passbook whereby he can use the gold in the account for any occasion.
Hence only the gold required by customers for consumption would be required in physical format and the rest can remain in demat format which in turn would help control the import of physical gold.
Also, the demat gold should be fungible and allowed to be transferred to other account (e.g. family, friends, jewellers etc.). One can look at how the ICBC (China) gold scheme has been successful.
A gold spot exchange would help organise gold trading on a national scale with standardized price, purity, etc. The GMS could be changed to initially allow bars and coins for the scheme if the issue of melting of gold jewellery poses as an obstacle.
Also, export of gold bullion could be considered as an option to boost recycling in India. If there is an open two way trade, it could also negate the need to get unofficial gold into the market.
For, if gold can be exported easily, then there would be no need to hold high levels of inventory to take advantage of the higher price. It would also attract many organized sector players to venture into gold recycling/ refining business thereby unlocking the “locker” gold and bringing it out in the formal economy.
Also, it is imperative that mining of gold is given top priority. At the moment too many procedures/ processes and lack of focus from the authorities appear to block any progress on that front. Indian mines are said to have very high quality of gold deposits (per tonne) and can be a very attractive destination for global miners.
If India gets its house in order on the mining and recycling front it could reduce its dependence on imported gold. Half-hearted attempts simply won’t do. India has to go for broke.