Shares of India’s leading gold loan non-banking financial companies (NBFCs), Muthoot Finance and Manappuram Finance, witnessed a significant surge of up to 7% today. This upward movement in the market comes in the wake of the government urging the Reserve Bank of India (RBI) to ensure that small gold loan borrowers are not adversely affected by the central bank’s proposed new draft directions on lending against gold collateral.
The Ministry of Finance, through its Department of Financial Services (DFS), made a strong suggestion to the RBI to consider exempting small-ticket gold loans, specifically those below ₹2 lakh, from the purview of the proposed stringent regulations. This recommendation aims to facilitate timely and speedy disbursement of loans for these crucial small borrowers, many of whom rely on gold loans for immediate financial needs, particularly in rural and semi-urban areas.
Furthermore, the government has advised the RBI to implement any new guidelines from January 1, 2026, stressing the need for adequate time for operational adjustments at the field level across the financial sector. This delayed implementation, coupled with the potential exemption for small borrowers, has been perceived positively by the market, providing relief to gold loan NBFCs whose core business heavily depends on these small-ticket loans.
Impact on Gold Loan Companies and Market Reaction:
The initial draft guidelines from the RBI, released in April 2025, aimed to enhance underwriting standards, improve collateral management, and monitor the end-use of funds in the gold loan segment. Among the key proposals was a mandate for all gold loans to maintain a loan-to-value (LTV) ratio of less than 75% throughout the loan tenure, including accrued interest. This could potentially reduce the loan amount disbursed for the same value of gold, impacting borrowers who rely on higher LTVs. Additionally, the draft guidelines touched upon aspects like proof of gold ownership and stricter regulations for bullet repayment loans.
These proposals had initially caused some apprehension among gold loan companies and investors, as stricter norms could lead to increased operational burdens, slower loan disbursements, and a potential dampening of growth, particularly for NBFCs heavily focused on gold lending. However, the Finance Ministry’s proactive intervention and its clear stance on protecting small borrowers have assuaged some of these concerns.
Muthoot Finance’s stock surged over 7% to an intraday high of ₹2,222, while Manappuram Finance also rallied around 4% to a high of ₹240.45. This positive market reaction reflects investor confidence that the government’s recommendations will lead to a more balanced regulatory framework, allowing these companies to continue serving their vast customer base without significant disruption.
The Significance of Gold Loans in India:
Gold loans are a vital component of India’s financial landscape, particularly for individuals and small businesses seeking quick and collateralized access to credit. India’s deep cultural affinity for gold means that a significant portion of household wealth is held in the form of gold jewelry. During times of financial need, these gold assets often serve as a readily available source of liquidity.
The gold loan market has witnessed substantial growth in recent years, driven by factors such as increasing financial awareness, the ease and speed of obtaining these loans with minimal documentation, and the rising price of gold, which enhances the loan-to-value proposition. Organized players, including banks and NBFCs, have increasingly entered this space, offering transparent pricing and customer-friendly processes, contributing to the formalization of a previously largely unorganized market.
Looking Ahead:
The RBI is currently reviewing feedback received from various stakeholders, including the Finance Ministry and the public, on its draft guidelines. It is anticipated that the central bank will duly consider these concerns before finalizing the directions. The government’s intervention underscores its commitment to balancing regulatory discipline with the crucial financial inclusion needs of common borrowers, particularly those in underserved segments who rely on gold loans for their day-to-day requirements. The coming months will be keenly watched for the final shape of these regulations and their long-term implications for India’s dynamic gold loan sector.