RBI's LTV Relief
Gold loan financing companies witnessed a sharp surge in their stock prices following a significant indication from the Reserve Bank of India (RBI) regarding a potential regulatory relaxation for small-ticket gold loans.
As per recent statements from the RBI Governor, the central bank is considering increasing the Loan-to-Value (LTV) ratio for gold loans up to ₹2.5 lakh from the current 75% to 85%. This means that a borrower with gold worth ₹1 lakh could soon be eligible to receive up to ₹85,000 as a loan, compared to the earlier ₹75,000. This move aims to provide enhanced liquidity, particularly for low-income borrowers and small-ticket loans.
Importantly, the RBI has clarified that this increase in LTV would apply only to consumption loans, and the overall credit appraisal process will continue to be an essential criterion for lending. The final regulatory circular is expected to be released soon, possibly within a few days.
This policy development led to a sharp rally in the shares of companies heavily involved in gold loans:
Muthoot Finance, a market leader in gold loans, saw strong buying interest.
Manappuram Finance, which derives approximately 51% of its revenue from the gold loan segment, also experienced a notable rise in share price.
L&T Finance, which has been exploring opportunities in the gold loan segment, attracted investors anticipating future growth.
IIFL Finance, which recently saw restrictions lifted on its gold loan business by the RBI
Market experts believe this is a structurally positive development for the gold loan industry. Long-term investors, especially those focused on value and growth in the NBFC sector, are viewing these stocks more favorably. Manappuram Finance continues to be a preferred long-term pick for many analysts due to its stable fundamentals and recent strategic developments.
Although Muthoot Finance has shown stronger near-term momentum, both it and Manappuram are expected to benefit substantially if the final regulation is implemented as proposed. IIFL Finance, now free from regulatory overhang, is also seen as an attractive opportunity at current valuations.
The proposed increase in LTV for small-ticket loans marks a shift in RBI’s stance, aimed at supporting financial inclusion and credit access without compromising systemic risk. The market has already responded with optimism, and all eyes are now on the official release of the updated regulatory directive.
Disclaimer:
This article is intended for informational purposes only and should not be construed as investment advice. Investors are advised to perform their own due diligence or consult with a licensed financial advisor before making any investment decisions. Stock market investments are subject to risks.
