RBI’s Regulatory Plans Shake Gold Loan Stocks: Muthoot & IIFL Slip Amid Broader Policy Changes

Shares of major gold financing companies, such as Muthoot Finance and IIFL Finance saw a sharp decline on Wednesday, April 09. By 12:50 PM, Muthoot Finance share price had slipped by 7.3%, while IIFL Finance also traded lower, reflecting investor reaction to fresh regulatory concerns. The sudden dip follows a key announcement by the Reserve Bank of India (RBI) regarding upcoming changes in gold loan regulations.

RBI’s Move to Regulate Gold-Backed Loans

During the monetary policy announcement, RBI Governor Sanjay Malhotra indicated that the central bank will soon issue comprehensive regulations governing loans backed by gold jewellery and ornaments. These loans, often availed for both personal consumption and income-generating activities, are widespread among retail borrowers.

The RBI’s new framework will aim to harmonise guidelines across various types of regulated entities, factoring in their differing risk appetites and operational models. This could potentially impact how gold loan NBFCs operate, manage risk, and serve borrowers going forward.

Gold Loans: A Core Segment for NBFCs

The announcement carries significant implications for companies with heavy exposure to gold loans. For instance:

• Muthoot Finance has nearly 98% of its Assets Under Management (AUM) tied to gold loans.

• Manappuram Finance holds about 50% of its AUM in this segment.

• IIFL Finance stands with roughly 21% exposure.

This deep reliance makes these companies particularly sensitive to any regulatory adjustments in the gold lending space.

Monetary Easing: A Broader Policy Context

The regulatory update coincided with a broader policy shift, as the RBI reduced its key repo rate by 25 basis points to 6%, marking the second consecutive cut. The central bank also changed its stance from “neutral” to “accommodative”, signalling a willingness to support growth.

Other associated rate changes include:

• Standing Deposit Facility (SDF): Reduced to 5.75%

• Marginal Standing Facility (MSF): Lowered to 6.25%

• Bank Rate: Also set at 6.25%

This dovish policy shift is in response to economic indicators suggesting a potential slowdown.

Growth Outlook Revised Downward

In addition to interest rate adjustments and regulatory updates, the RBI also revised its GDP growth forecast for FY26. The projection now stands at 6.5%, a 20 basis point cut from the previous estimate of 6.7%. This reflects a more cautious economic outlook amid both domestic and global uncertainties.

Conclusion

The RBI’s move to regulate gold-backed loans has triggered immediate market reactions, especially among gold-centric NBFCs. Investors now await further clarity on the regulatory framework and its broader implications for the sector.

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