Brokerages believe that larger and more established gold financiers like Muthoot Finance and Manappuram Finance are “better positioned” to navigate the Reserve Bank of India’s (RBI) latest regulatory directive, which flagged significant irregularities in the gold loan sector.

Due to their history of compliance and regular audits, Jefferies and Morgan Stanley have pointed out that these companies are more likely to withstand regulatory scrutiny. However, some near-term challenges may be there, the brokerage houses said.

Jefferies noted that while the RBI’s direction could slow growth for some gold lenders, Muthoot and Manappuram may remain largely unaffected.

IIFL Finance, which recently took corrective measures and resumed gold loan services after an RBI audit, is also expected to navigate the tighter controls smoothly.

Morgan Stanley emphasised that the three-month window provided by the RBI to address deficiencies will help prevent regulatory action. However, it acknowledged some lingering uncertainty in the sector as processes tighten.

Between Muthoot and Manappuram, the latter stands out for its attractive valuation, with a price-to-book ratio of 1.1x FY26 estimates versus Muthoot’s 2.5x, and lower year-to-date returns (18% vs. 38%).

This makes Manappuram a safer bet, according to the brokerage, particularly given the cheaper valuation and the slower rise in its stock.

RBI’s concerns on gold loans

The RBI’s directive stems from a comprehensive review of several supervised entities (SEs) in the gold loan market.

During this examination, the central bank identified several deficiencies, including:

• Improper use of third parties for sourcing and appraising loans.
• Valuation of gold without the customer’s presence.
• Lack of due diligence and poor monitoring of loan-to-value (LTV) ratios.
• Inadequate oversight of auctions when gold ornaments are sold off due to defaults, along with weaknesses in assessing the end-use of loans.

The RBI has given gold financiers three months to address these issues or face supervisory action.

The directive also extends to gold loans sourced through fintech platforms, an area where the RBI has previously raised concerns.

These deficiencies, particularly in smaller or newer lenders, could lead to stricter internal controls and slower loan disbursement.

Gold lending market dynamics

Larger NBFCs like Muthoot Finance and Manappuram Finance dominate the gold loan market, with Muthoot commanding an 82.5% share among NBFCs, followed by Manappuram with 52.6%, according to a Citi report.

Smaller players like IIFL Finance (21.2%) and SBFC (16%) also have significant exposure.

On the banking side, Federal Bank leads with a 12.2% share, while other major lenders like Bank of Baroda, RBL Bank, and ICICI Bank have smaller shares of 4.6%, 3.8%, and 2%, respectively.

-With Abhishek Kothari’s inputs