Gold loan NBFCs remain unaffected
Gold loan NBFCs have indicated that the RBI directive capping cash loan disbursements at ₹20,000 will have minimal impact, as the majority of their business is already conducted digitally.
“Our highly popular product ‘Online Gold Loan,’ which represents 50 percent of our gold loan portfolio, operates through a completely paperless process for both application and disbursement. Even for branch-originated loans, most customers prefer direct transfers,” said V.P. Nandakumar, MD and CEO of Manappuram Finance, noting that the directive will not hinder their operations.
Nandakumar added that employees are trained to encourage customers to choose online disbursements, promoting “smooth operations.” He also highlighted that the RBI’s advisory will “promote transparency and prevent potential disputes.”
Recent reports state that the RBI has asked NBFCs to cap cash disbursements at ₹20,000 per transaction. This follows the central bank’s restrictions on IIFL Finance’s gold lending business in March 2024. According to Morgan Stanley Research, the cap will necessitate operational adjustments primarily in the gold loan sector, potentially causing a temporary but manageable financial impact. They noted that Muthoot Finance is expected to be the most affected, followed by Manappuram Finance.
Previously, NBFCs could disburse up to ₹2 lakh in cash if preferred by the customer, although they encouraged bank account credits by offering discounted lending rates. Gold loans make up 84 percent of Muthoot Finance’s overall portfolio, with 40 percent estimated to be transacted online. For Manappuram Finance, gold loans constitute 51 percent of their portfolio, with 56 percent being online gold loans. Shares of both lenders initially fell by 8-9 percent intraday before recovering, with Manappuram Finance closing 7.3 percent lower at ₹166.80 and Muthoot Finance down 3.8 percent at ₹1,597 on the NSE.
George Alexander Muthoot, MD of Muthoot Finance, told a news channel that he does not foresee significant impact or challenges, as most customers already opt for real-time transfers to bank accounts. He emphasized that customers who prefer cash will need to be informed about the ₹20,000 cap and that 80 percent of interest payments are also made through online channels.
However, India Ratings warned that reduced cash disbursements could slow growth for gold loan NBFCs, as borrowers might turn to moneylenders or Nidhi companies for quick disbursals and ease of operations. The regulatory action on IIFL Finance could increase operational costs for all gold financing entities due to higher regulatory compliance costs, increased competition, and rising branch profitability thresholds. They called for a standardized disbursal process across gold lenders to address the variability in internal policies.
India Ratings also projected that the break-even AUM for new branches would need to rise by 12 percent for large gold NBFCs and by 10 percent for mid-to-small gold NBFCs, primarily due to increased compliance costs. They suggested that mid-to-small gold loan NBFCs might prefer co-lending to achieve profitable growth.
