Shares of Muthoot Finance, a prominent non-banking financial company (NBFC) focused on gold loans, have experienced a significant downturn, plummeting 8.13% on April 11 to reach a three-month low of ₹1,965 per share. This decline marks the second consecutive day of falling stock prices, triggered by new regulatory guidelines introduced by the Reserve Bank of India (RBI) aimed at streamlining the gold loan sector.

RBI’s New Guidelines for Gold Loans

On April 9, the RBI released a draft framework designed to standardize gold loan procedures across all financial institutions. These guidelines are intended to enhance borrower protection and ensure uniformity in the evaluation of gold collateral.

Key elements of the RBI’s draft include:

• Uniform Documentation: Lenders must adopt standardized documentation for all gold loans.
• Evaluation Procedures: A standardized approach for assessing the purity and weight of gold, both gross and net, is now mandatory.
• Transparency Measures: All procedures must be available on lenders’ websites and implemented across all branches.

Borrower Rights and Communication

A crucial aspect of the new regulations involves borrower involvement during the gold assaying process at the time of loan approval. The RBI mandates that any deductions for stone weight, fastenings, and impurities must be thoroughly explained and documented.

Furthermore, the loan agreement must specify:

• The details of the gold collateral
• Its assessed value
• Auction terms, including notice periods for repayment and settlement conditions

To facilitate clear communication, lenders must use the local language preferred by the borrower. In cases where borrowers are illiterate, key terms must be explained in the presence of a witness.

Market Reaction and Future Prospects

Despite the immediate decline in stock prices, some industry experts express optimism. Umesh Mohanan, CEO of Indel Money, noted that the RBI’s recent changes could foster improved business sentiment and potentially boost demand for gold loans, particularly as gold prices remain near record highs.

Muthoot Finance, which predominantly offers loans against gold jewelry, reported that gold loans constitute 98% of its total Assets Under Management (AUM). As of March 13, 2025, the company achieved a major milestone, surpassing ₹1 lakh crore in gold loan AUM.

Stock Performance Overview

Historically, Muthoot Finance shares have demonstrated volatility. Following a significant drop between August 2021 and June 2022, the stock rebounded impressively, gaining 145% until March 2025, even reaching a record high of ₹2,435 during that period. However, the recent regulatory changes have prompted a 16% correction this month—the steepest decline since March 2020, when shares fell by 30%.

Analyst Insights on Long-term Impact

Analysts from Motilal Oswal Financial Services suggest that the RBI’s guidelines are not expected to disrupt the gold loan market significantly. They believe the changes are primarily aimed at harmonizing regulations across all lenders, asserting, “While certain operational adjustments will be necessary, we do not foresee these guidelines adversely affecting the loan growth or profitability of gold loan companies we monitor, including Muthoot, Manappuram, and IIFL Finance.”

This mixture of cautious optimism and regulatory change highlights the evolving landscape of gold loans in India, suggesting that while challenges exist, opportunities may also arise in the near future.