Mumbai: In the first bimonthly monetary policy of FY2025-26, RBI Governor Sanjay Malhotra made a significant announcement regarding gold loans. He revealed that new rules and guidelines for gold loans would be issued soon. These new regulations aim to bring uniformity between banks and Non-Banking Financial Companies (NBFCs) in their approach to providing gold loans.
Impact on Muthoot Finance and IIFL Finance
Following the RBI Governor's statement, shares of major gold loan companies like Muthoot Finance and IIFL Finance took a sharp hit. Muthoot Finance saw a 5 per cent drop, while IIFL Finance's shares fell by 4.7 per cent. The gold loan business is a major part of both companies, making this announcement significant for their financial outlook.
Stricter Regulations on Gold Loans
The RBI's new guidelines are expected to bring stricter regulations on the gold loan sector, particularly regarding loan capacity, margins, and profit margins. The Governor mentioned that the rules for gold-backed loans will be reviewed and will likely become more stringent. This could affect both the way these loans are issued and the terms on which they are given, which may lead to higher costs for customers.
Harmonisation of Regulations for Banks and NBFCs
A key aspect of the new guidelines is the harmonization of rules for both banks and NBFCs. Currently, the rules for providing gold loans vary between these two entities. The RBI aims to create a comprehensive set of regulations that will ensure both banks and NBFCs follow the same guidelines. This move is expected to improve risk management and safeguard both consumers and financial institutions.
Short-Term Pressure, Long-Term Security
In the short term, the stricter rules may put pressure on gold loan companies. However, the RBI believes that these changes will strengthen the financial system in the long run. The aim is to reduce risks and create a more secure environment for lending.
What Does This Mean for the Industry?
The impact of these new rules will be felt across the gold loan industry, particularly by companies like Muthoot Finance, IIFL Finance, and Manappuram, all of which heavily rely on gold-backed loans for their business. While the stricter regulations may cause some initial challenges, the goal is to create a more robust and secure system for the future.
