Muthoot Finance Sinks 6% on RBI’s Draft Gold Loan Norms

Shares of Muthoot Finance plummeted by over 6% to ₹ 2028.70 on Friday, April 11, 2025, following the Reserve Bank of India’s (RBI) release of draft guidelines for gold-backed loans. The announcement triggered sharp intraday volatility, with the stock briefly hitting a 10% lower circuit before recovering partially. The proposed norms have unsettled investors, leading to an increase in trading volumes and bearish sentiment across the market.

Details of RBI’s Draft Guidelines

The RBI’s draft norms aim to rationalise gold loan regulations for Non-Banking Financial Companies (NBFCs). Key proposals include:

Loan-to-Value (LTV) Ratio Cap: Capping the LTV ratio at 75%, restricting the amount borrowers can avail against the value of pledged gold.

Bullet Repayment Tenure: Limiting bullet repayment loan tenures to 12 months, potentially impacting customer flexibility.

Portfolio Limits: Mandating NBFCs to set internal limits on their gold loan portfolios to manage risks effectively.

While RBI Governor Sanjay Malhotra clarified that the intent was to rationalise rather than tighten norms, investor sentiment remained cautious, reflecting fears of reduced growth potential for gold-loan-focused NBFCs like Muthoot Finance.

Market Reaction and Analyst Downgrades

The announcement led to significant market activity:

Kotak Institutional Equities downgraded Muthoot Finance from ‘Buy’ to ‘Add,’ slashing its target price from ₹2,400 to ₹2,250 and cutting earnings estimates by 10%. Kotak cited regulatory overhang as a factor likely to temper stock performance in the near term.

Axis Securities flagged the sell-off intensity, noting a 7% intraday decline and the highest single-day trading volume since January 2024. Open interest in futures surged by 20%, with aggressive call writing indicating bearish sentiment.

Despite these reactions, Jefferies maintained a constructive stance on gold-loan NBFCs, naming Muthoot Finance as its preferred pick with a target price of ₹2,615. CLSA described the guidelines as “marginally disruptive” and projected 12–15% loan growth for Muthoot and Manappuram Finance over FY 26–27.

Impact on Peers

Muthoot Finance’s peers saw mixed market reactions: IIFL Finance rose 0.14% and Manappuram Finance rose 0.8%, supported by Bain Capital’s open offer and expectations of greater resilience compared to Muthoot.

Outlook and Conclusion

While the final RBI guidelines will ultimately determine the long-term impact on gold-loan NBFCs, Friday’s market action highlights immediate concerns about growth and margins for companies like Muthoot Finance. The regulatory uncertainty has turned technicals and sentiment negative for the stock in the short term. Investors will closely monitor developments as the sector adjusts to these proposed changes.

Disclaimer: This news is solely for educational purposes. The securities/investments quoted here are not recommendatory.

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