A steep 70% rally in domestic gold prices over the past year has acted like a Midas touch for gold financiers. Shares of key listed gold-loan companies Muthoot Finance Ltd and Manappuram Finance Ltd have surged nearly 94% and 68%, respectively, in the last 12 months.
The soaring value of borrowers’ gold collateral has made gold loans more attractive than other borrowing avenues, even as regulatory curbs on unsecured personal lending have prompted borrowers to turn to gold-backed credit.
In the first half of FY26, Muthoot reported a 47% year-on-year (YoY) growth in its gold loan assets under management (AUM), surpassing expectations of a moderation after a 43% YoY AUM growth in FY25. Alongside rising gold prices through September 2025, Muthoot’s interest income jumped 55% YoY to ₹6,304 crore in Q2FY26. Non-performing asset (NPA) recoveries of ₹300-400 crore in the same quarter helped reduce gross NPAs by 30 basis points sequentially. Coupled with a lower cost of funds due to monetary easing and a higher share of high-yield disbursements, profit surged 87.5% on year to ₹2,345 crore.
Buoyed by these gains, Muthoot’s management has revised its FY26 gold-loan AUM growth guidance sharply upward, from 15% to 30-35%. With banks passing on benefits from MCLR cuts, the cost of funds is expected to fall by another 15-20 bps in the coming quarters. These positive trends helped the stock hit a new 52-week high of ₹3,833 on Monday.
By comparison, rival Manappuram Finance’s performance has been more subdued. While the gold lending business is cyclical, against the current backdrop of soaring gold prices, diversification away from fast-growing gold loans could be one factor for its relatively lower one-year return.
Unlike Muthoot, whose loan book was almost 95% concentrated in gold loans in Q2FY26, gold loans accounted for less than 70% of Manappuram’s assets. The more diversified focus has constrained growth in gold loans, which rose 30.1%. This, along with a decline in its vehicle and equipment finance portfolio, explains the much mellower 18.7% year-on-year standalone AUM growth reported by Manappuram.
Regulatory tightrope
That said, there are risks which emerge from concentration in gold loans. Competition has heated up in gold loans, which comprised almost a quarter of the personal loans added by banks to their books in the twelve months ended October. With the Reserve Bank of India now allowing a higher 40% of non-qualifying assets, microfinance institutions have also pushed the pedal on gold lending. Of course, non-banking financial companies’ (NBFCs) gold loan AUM stands at ₹3 trillion against banks’ ₹13 trillion, leaving ample room for growth.
Regulations remain a double-edged sword. Tailwinds, including higher loan-to-value (LTV) caps and exemption from credit assessment for small-ticket loans, have helped drive growth, and silver-backed loans will be allowed from FY27. But headwinds stem from regulations on maintaining LTV throughout the loan tenure, tighter guidelines on renewals of bullet-repayment loans, and a prohibition on lending against primary gold and financial gold assets to curb speculation.
NBFCs cannot offer loans for gold purchase and on re-pledged gold. Stringent standards imposed on underwriting and collateral-management can increase compliance costs.
Muthoot has applied for regulatory approvals to open additional branches. It plans to open 100-200 new branches annually aimed at improving distribution further. The expansion is expected to be funded with the recently approved issuance of non-convertible debentures worth ₹35,000 crore in addition to equity infusion. But the stock trading at 3.5x its FY26 book value, according to Bloomberg, appears priced to perfection.
