Muthoot Finance shares have plunged by 12% over the last two trading sessions, as concerns grow around the Reserve Bank of India’s (RBI) draft guidelines on gold lending. As of Friday, April 11th, at 10:24 AM, Muthoot Finance shares were trading 6% lower at ₹2,007 on the NSE, reflecting investor unease over potential regulatory headwinds.
The sharp sell-off is largely attributed to RBI’s proposed tightening of norms for gold loans, particularly for Non-Banking Financial Companies (NBFCs). One of the most impactful changes involves the redefinition of Loan-to-Value (LTV) ratios for bullet repayment loans, where the LTV would now be calculated on the total repayment amount. This effectively reduces the amount that can be borrowed against gold, making such loans less attractive and potentially curbing demand.
Brokerages have expressed concern that the changes are more punitive for NBFCs than for banks. Macquarie, Nuvama, and other firms noted that while banks already follow many of these norms, NBFCs like Muthoot will face added compliance challenges. Nuvama specifically highlighted that the LTV cap of 75% must be maintained throughout the life of the loan, and non-compliance could attract penalties — a significant operational burden for NBFCs.
In response to the draft guidelines, Kotak Institutional Equities downgraded Muthoot Finance from “Buy” to “Add,” slashing the target price from ₹2,400 to ₹2,250 and cutting earnings estimates by 10%. The brokerage cited concerns over potential moderation in growth and margins. Jefferies and CLSA also flagged similar risks, though they believe earnings for gold-focused lenders like Muthoot and Manappuram may remain somewhat insulated in the near term.
Another factor worrying investors is the potential for increased competition from informal moneylenders if stricter LTV rules reduce Muthoot's competitive edge. The RBI’s norms might also reduce internal rate of return (IRR) on loans due to higher compliance and collateral demands.
However, not all is negative. Morgan Stanley pointed out that the absence of a monthly interest servicing mandate and the allowance for bullet loan rollovers are better-than-feared outcomes. They believe that Muthoot’s countercyclical business model could still support strong earnings, estimating a Return on Equity (ROE) of 20% and 18% for FY26 and FY27, respectively, even if Assets Under Management (AUM) remain flat.
In summary, the 12% fall in Muthoot Finance’s share price reflects a blend of regulatory fears, loan growth concerns, and a shift in analyst sentiment. Until there is clarity on the final RBI guidelines, investor confidence is likely to remain subdued, weighing on the stock’s performance despite the company’s strong fundamentals.
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