Gold Prices In India Alert: Gold loan companies trading as NBFCs on BSE and NSE witnessed sharp selling pressure on Friday, as gold prices in India corrected deeply. After rallying for around 11% and crossing Rs 1,00,000 mark, the limelight shifted to gold-related investments, including gold loan stocks. The trend in gold loan NBFCs is a mixed bag, especially after RBI's new rules on the sector. In general terms, higher gold prices lead to further lending benefits for these gold financiers.
On Friday, gold prices in India were unchanged to Rs 98,240 in 24K of 10 grams, while 10 grams of gold in 22K and 18K stood at Rs 90,050 and Rs 73,680 respectively.
Gold prices have dipped by Rs 110 on April 24th in 24K of 10 grams, followed by biggest 2025 single-day decline of Rs 3,000 on April 23. Gold prices have been correcting since it touched new all-time high of Rs 1,01,350 per 10 grams in 24K and Rs 92,900 per 10 grams in 22K on April 22nd.
MCX Gold Prices:
Also, MCX gold price, with June 2025 expiry, plunged by Rs 312 to trade at Rs 95,600 per 10 grams, at the time of writing. The bullion has touched an intraday low of Rs 95,261 per 10 grams. This MCX gold recorded its new all-time high of Rs 99,358 per 10 grams on April 22nd as well.
"The metal's safety appeal was bolstered by skepticism over the progress of US-China trade talks. President Trump reiterated that trade negotiations are ongoing, despite Chinese denials. However, rebound in the dollar index and hopes of US-China talks on trade tariffs could limit gains," Rahul Kalantri, VP Commodities, Mehta Equities said.
Gold Loan Stocks:
On April 25th, Manappuram Finance share price dipped by nearly 3% to hit an intraday low of Rs 222.55 apiece.
Along similar lines, Muthoot Finance stock dipped by 3% to hit an intraday low of Rs 2084.25 apiece on BSE. IIFL Finance shares dropped by nearly 5% to hit an intraday low of Rs 356.80 apiece. Meanwhile, Poonawalla Fincorp shares dropped by nearly 4% to hit an intraday low of Rs 380.25 apiece.
Here are the impact of rising gold prices on gold loans, as per Shriram Finance's blog:
- Loan eligibility on pledged gold increases, so you can get higher top-up loan amount on existing gold collateral
- Loan margin (difference between the market value of gold and loan amount) improves
- Interest cost on the loan comes down due to higher gold price
But fall on gold prices, lead to:
- Loan eligibility for pledged gold decreases
- Loan margin deteriorates
- The borrower may need to pledge additional gold to maintain an adequate margin
- Interest cost increases due to lower gold value
Thereby, drop in gold prices could dull demand for gold loans, which is not good for gold financiers.
Notably, gold loan companies are in focus since RBI announced new rules for gold NBFCs. The fresh guidelines are expected to give significant impact on gold financiers, with potential implications for business growth, market share, operating models and compliance and risk management systems, as per Elara Capital's note.
RBI noted that loans against the collateral of gold jewellery and ornaments are extended by regulated entities (REs) for both consumption and income-generation purposes. Prudential and conduct related regulations for such loans have been issued from time to time and they vary for different categories of REs.
Hence, with a view to harmonizing such regulations across REs while keeping in view their risk-taking capabilities, and also to address a few concerns that have been observed, RBI decided to issue comprehensive regulations, on prudential norms and conduct related aspects, for such loans.
According to Elara Capital's comparative assessment, the impact of guidelines is more pronounced for gold loan NBFCs than for banks due to stringent LTV norms and end-use consumption limits, thus near-term disbursal constraints, compliance rejig and subsequent higher operational and credit costs. Longer term, as the market consolidates with unorganized exits, expect modest market share gains for Muthoot Finance (MUTH IN), Manappuram Finance (MGFL IN) and IIFL to the tune of 100-200bps.
Which Gold Loan NBFCs To Buy?
Muthoot Finance Share Price:
MUTH's strong market presence, robust compliance history, adaptability, strong valuation and auction processes and prudency will enable it to navigate the new norms with greater ease. However, MUTH may require system enhancements and staff training to maintain LTV compliance and categorize loans based on end-use. Subsequently, we model a marginal drop in the average LTV to 60% from 63%, a dip of 6-10% in disbursals, loan growth pared to 18.5% in FY26E (15% in FY27E) and modest NIM compression assuming no near-term product diversification with 2% operational costs spike in FY26E. Subsequently, the operating profits may dip by 7%, translating into 5.0-5.2% RoAs and ~18% RoEs in FY26E-27E. With EPS being pared by ~7%, we trim our TP by 2%, valuing the core business at 2.5x FY27E P/ABV to arrive at an SoTP TP of INR 2,467 (from INR 2,551), as per Elara's note.
Manappuram Finance Share Price:
Analysts at Elara in their note said, "MGFL's reported average LTV of 60-65% might marginally be hit but stricter monitoring may limit higher volumes, with subsequent impact of 10% on disbursals and loan growth likely at 15.5% in FY26E-27E. Lower disbursals in FY26E and elevated operational and credit costs may dent operating profits by 9% and EPS by 10-11%, driving down RoAs to 3.6-3.7% and RoEs to 16% in FY26E-27E. Our TP for MGFL is unchanged at INR 250 as we value its consolidated book at 1.4x FY27E P/ABV, factoring in the positives from strategic Bain investment."
Disclaimer: The write-up is just for information purposes, and is not a recommendation to buy, sell or hold. We have not done fundamental or technical analysis and have no opinion on article mentioned. Neither, the author nor Greynium Information Technologies should be held liable for any losses. Please consult a professional advisor.
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