RBI's New Gold Loan Rules Shake Up Sector: Muthoot & Manappuram Stocks Tumble, Lenders Brace for Stricter Norms

The Reserve Bank of India (RBI) has sent shockwaves through the financial markets with its announcement of upcoming comprehensive guidelines for the gold loan sector. The move is aimed at standardizing gold loan regulations across banks and non-banking financial companies (NBFCs), amid rising risks, increasing loan volumes, and mounting concerns over irregular lending practices.

Gold loan giants Muthoot Finance and Manappuram Finance are already feeling the heat. Following the RBI’s announcement, both stocks saw sharp declines, sparking widespread anxiety among lenders and investors.

Why RBI Is Tightening Gold Loan Rules

India’s deep-rooted cultural affinity for gold has long made gold-backed loans a popular financing option, particularly for individuals and small businesses outside the formal credit system. With the recent surge in gold prices, the sector has seen a parallel increase in gold loan disbursals—raising regulatory red flags over asset quality, transparency, and risk exposure.

During the Monetary Policy Committee (MPC) meeting on April 9, 2025, RBI Governor Sanjay Malhotra confirmed the regulator’s intention to harmonize the framework that governs banks and NBFCs in the gold loan segment. The regulator is inviting public feedback before finalizing the new guidelines.

Market Fallout: NBFC Stocks Plunge

The immediate market reaction was swift:

• Muthoot Finance shares plummeted by 10%

• Manappuram Finance stock dropped by 2.78%

Analysts warn that stricter compliance norms and a potential cap on lending limits could squeeze margins and inflate operational costs, especially for NBFCs that dominate the gold loan market.

Key Changes Expected in the Draft Guidelines

While the full draft is yet to be published, sources and analysts anticipate the following measures:

• Loan-to-Value (LTV) Ratio Reduction:
  The current LTV cap for NBFCs is 75%, which may be reduced to align with banks or further tightened to mitigate credit risk.

• Transparent Auction Procedures:
  In cases of loan default, the RBI may enforce uniform and more transparent auction processes for pledged gold assets.

• Stronger Oversight and Reporting:
  Enhanced compliance protocols and centralized reporting systems could be introduced to monitor collateral handling and borrower risk profiles more effectively.

• Unified Regulatory Framework:
  By bridging the regulatory gap between banks and NBFCs, RBI seeks to create a level playing field, enhance sector stability, and curb regulatory arbitrage.

What This Means for Borrowers and the Market

For gold loan customers, especially small borrowers, tighter LTV rules could mean lower loan amounts for the same collateral, potentially pushing them to alternative credit sources.

For NBFCs, which cater to a large portion of rural and semi-urban borrowers, the challenge will be to absorb increased compliance costs without passing the burden onto customers—or losing market share.

RBI’s Broader Monetary Strategy

This regulatory update coincides with a 25 basis point cut in the repo rate, bringing it down to 6% in the April 2025 MPC meeting. While the rate cut is expected to support credit growth, the gold loan overhaul signals a pivot toward risk management and sectoral discipline.

Final Word

RBI’s move to regulate the gold loan sector more stringently reflects a broader strategy to ensure financial stability and transparency. As public feedback is gathered and the final rules are framed, all eyes will be on how NBFCs adjust to a potentially transformative regulatory landscape.