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Informist, Wednesday, May 14, 2025

MUMBAI – The changes proposed by the Reserve Bank of India in the loan-to-value norm of gold loans by non-banking finance companies are not ideal for customers, the management of Muthoot Finance Ltd. said on Wednesday. "The tweak in LTV (loan-to-value) is not in the interest of customers. Due to this rule, customers may actually go back to money lenders," the management said at a post-earnings analysts call on Wednesday.

Loan-to-value ratio means the ratio of the outstanding loan amount, including any accrued and unrealised interest, to the value of the collateral security on a reference date. According to the draft guidelines issued by the RBI in April, the maximum loan-to-value ratio in respect of gold loans should not exceed 75% of the value of gold and the ceiling of 75% will apply to all gold loans sanctioned by the non-bank finance companies, irrespective of the purpose for which the loan has been sanctioned. 

The management said that the implementation of the guidelines will lead to an increase in the compliance cost of the company. "The Association of Gold Loan Companies have made their representation to the RBI and we are awaiting their reply," the management said.

The management said new players are entering the gold loan business and the regulator is unsure if all the entities are following the norms. "The draft guidelines aim to harmonise the rules across all financial entities. Older entities, like us, have been in the business and have been complying with all norms, but the regulator is unsure if the newer players are as compliant," the management said.

The rising gold prices and the addition of new players are "red flags" for the RBI, the management said.

On the non-bank lender's performance, the management maintained the guidance of growing its gold loan book by 15% in the current financial year. However, the company said they would have to relook at the growth guidance after Jul-Sept. Muthoot Finance's gold loan assets under management were at INR 1.02 trillion as of Mar. 30, up 41% from a year ago.

On branch expansion plans, the company said it plans to open 115 branches in the current financial year. The non-banking finance company had 4,855 branches across India as of Mar. 31.

Muthoot Finance reported a 28% year-on-year increase in its bottom line at INR 15.08 billion in the March quarter on the back of a sharp jump in gold loans. The profit during the quarter was, however, below the analysts' estimate of INR 15.71 billion.

On Wednesday, shares of Muthoot Finance closed 2.0% higher at INR 2259.90 on the National Stock Exchange. The company announces its results after market hours. End

Reported by Kshipra Petkar

Edited by Saji George Titus

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