Muthoot Finance, Manappuram Finance, IIFL Finance shares fall up to 12% today, here's why

Shares of gold loan financing firms such as Muthoot Finance, Manappuram Finance and IIFL Finance nosedived up to 12% in the afternoon session on Wednesday after RBI Governor Sanjay Malhotra said the central bank would soon release comprehensive draft guidelines aimed at harmonizing regulations for loans backed by gold jewellery. 

Muthoot Finance shares slipped 11.63% to Rs 2027.25 against the previous close of Rs 2294.95 on BSE. Market cap of the firm slipped to Rs 83,602 crore. 

Manappuram Finance stock too plunged 2.63% to Rs 221.75 on SBE. Market cap of the firm plunged to Rs 18,875 crore. 

IIFL Finance, another gold loan players, too lost 8.48% to Rs 305.5 on BSE. Market cap of the firm fell to Rs 13,559 crore. 

“The draft guidelines in this regard are being issued for public comments,” the RBI said during its Monetary Policy Committee (MPC) review.

The norms are designed to unify lending practices across all regulated entities (REs) while taking into account their risk-bearing capacities. Currently, rules differ widely among banks and non-bank lenders. The new framework will address prudential and conduct-related aspects, especially following a spate of red flags identified in recent RBI audits.

Recent inspections in the gold loan sector have uncovered significant operational lapses, including improper gold valuation, inadequate due diligence, questionable auction practices, and inconsistent loan-to-value (LTV) ratios. Some lenders have been using fintech agents for gold storage and weighing, tasks traditionally managed by the lenders themselves. In response, the Reserve Bank of India (RBI) intends to rectify these vulnerabilities.

"The RBI said it aims to fix these vulnerabilities by mandating tighter underwriting norms," which include improved background checks on borrowers, gold ownership verification, stricter end-use monitoring, and uniform controls over third-party service providers.

This regulatory tightening follows explosive growth in the gold loan segment. By January 2025, gold loans issued by banks increased by 76% year-on-year, with monthly growth rates exceeding 50% since September 2024. This rapid expansion has prompted the RBI to enforce stricter conditions on borrowers.

Many banks are now requiring full repayment before extending loan tenures, rechecking gold purity during renewals, and imposing additional fees for extensions. Furthermore, the practice of allowing same-day loan rollovers by simply paying interest is being curtailed, reflecting a shift towards more stringent lending practices.