Gold financiers like Muthoot Finance and Manappuram Finance witnessed a drop in their stock prices after the Reserve Bank of India (RBI) flagged several irregular practices within the gold loan sector. On Tuesday, October 1, both companies saw their shares trading in the red.
Manappuram Finance fell by 1.74%, trading at ₹197.80, while Muthoot Finance dropped by 1.89%, with shares priced at ₹1,992.50 on the BSE. However, IIFL Finance bucked the trend, rising 1% to ₹467.85.
RBI’s scrutiny impacts gold financiers
The RBI’s recent inspection of gold loan businesses uncovered critical deficiencies in the sector. Issues such as the use of third parties for loan sourcing and appraisal, improper gold valuation in the absence of customers, and insufficient end-use monitoring of gold loans were among the concerns raised. Additionally, a lack of transparency during the auction of pledged gold in default situations was noted.
The regulator urged companies to conduct a comprehensive review of their gold loan portfolios and correct these irregularities promptly. The central bank's heightened scrutiny has spooked investors, contributing to the share market investment decline in gold financiers like Muthoot Finance and Manappuram Finance.
Gold loan market sees continued growth
Despite these regulatory challenges, the gold loan sector remains robust. A study by the rating agency Icra estimates that the portfolio of organised gold lenders will grow to ₹10 lakh crore by March 2025. The surge in gold loan demand reflects the increasing reliance on this secured form of financing among Indian households. Gold, considered a symbol of financial stability and cultural heritage, continues to be a preferred asset for securing loans.
IIFL Finance’s positive performance
Unlike Muthoot and Manappuram, IIFL Finance reported gains. Last month, the RBI lifted restrictions on its gold finance business, restoring investor confidence in the company. This regulatory relief, coupled with improved credit availability, has positioned IIFL Finance for growth.
Final thoughts
The RBI’s intervention highlights the importance of transparency and regulatory compliance in the gold loan sector. While the shares of Muthoot Finance and Manappuram Finance have slipped due to investor concerns, the overall growth prospects for gold loans remain positive. As gold retains its status as a valuable asset in Indian households, the market will likely continue to attract share market investment despite short-term setbacks.
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