ET Intelligence Group: A recommendation by the department of financial services (DFS) on Friday to exempt gold loans with ticket size below ₹2 lakh from the RBI’s proposed guidelines will significantly reduce regulatory pressure on gold loan companies. The exemption, if approved, is expected to shield nearly 80% of the customers of gold loan companies from tighter norms, paving way for shorter turnaround time for loan disbursals and faster expansion of business operations. Gold loan lenders including Muthoot Finance and Manappuram Finance gained 7% and 3% on bourses after the news reports on Friday.
“Borrowers taking gold loans below ₹2 lakh constitute nearly 80% of our total customer base. For other gold loan NBFCs, the share of such small-ticket borrowers is 70-80%,” said George Alexander Muthoot, managing director, Muthoot Finance. The average ticket size of gold loan is ₹88,000 while the average loan-to-value (LTV) ratio is 58% against the regulatory requirement of 75%, he added.
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Muthoot Finance, Manappuram Finance and IIFL Finance are the major gold loan financing firms. Over the past couple of years, the RBI has been closely scrutinising gold loan companies, which, according to industry officials, has slowed down loan disbursals and decision-making.
“Now with small customers excluded from the purview of the new rules, inspections and regulatory scrutiny are expected to ease. This will accelerate loan disbursals and improve turnaround times,” said a senior official at Manappuram Finance. “NBFCs will be able to expand their business without the fear of regulatory pressure,” he added.
Gold loan financing companies have seen a sharp rise in assets under management, driven by a surge in gold prices. The AUM of Muthoot Finance increased 43% year on year to ₹1.1 lakh crore at the end of March 2025 while Manappuram Finance’s AUM grew 19% to ₹24,658 crore.
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On the other hand, IIFL Finance reported a drop of 10% in AUM to ₹21,022 crore due to regulatory restriction by the RBI. In March 2024, the RBI had imposed restrictions on IIFL Finance, preventing it from sanctioning, disbursing, or selling gold loans. The banking regulator had lifted the restrictions last September allowing it to resume gold loan operations.Banks have tightened norms for unsecured loans, making it more difficult for borrowers to access personal loans. As a result, many borrowers, particularly in semi-urban and rural area, are turning to gold loan companies to meet their funding needs. In April this year, the RBI released draft guidelines for lending against gold. Under the proposed norms, lenders are prohibited from extending loans where the ownership of the collateral is uncertain and must maintain records verifying ownership. Borrowers are also barred from taking simultaneous gold loans for both consumption and income-generating purposes. Additionally, the draft rules prohibit loans against unfinished or semi-finished gold or silver, as well as against financial assets backed by them, such as exchange-traded fund (ETF) units or mutual fund units.
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