Gold Loan Boom Drives NBFC Surge: Muthoot Finance & Manappuram Finance Outperform

The gold loan market in India is experiencing unprecedented growth, with total loans reaching Rs 3.16 lakh crore as of September 19, 2025, a significant increase from Rs 1.47 lakh crore a year prior, according to Reserve Bank of India (RBI) data. Non-Banking Financial Companies (NBFCs) are dominant players, accounting for an estimated 55-60% of all gold loans disbursed.

This bullish trend has directly benefited gold loan NBFCs. Muthoot Finance, the largest gold loan financier, saw its stock surge 9.9% to Rs 3,726.9 on Friday, nearing its 52-week high. The company reported a 45% year-on-year growth in its gold loan assets under management (AUM) to a record Rs 1.24 lakh crore in Q2 FY26. Its return on average loan assets improved to 19.99%, and its Net Interest Margin (NIM) expanded to 11.2% from 9.6% a year ago. Crucially, its net profit jumped by an impressive 87.5% year-on-year to Rs 2,345 crore, aided by a significant reduction in NPAs, with Stage III loan assets falling to 1.86% from 3.68%.

Manappuram Finance also experienced a stock gain of 2.8% to Rs 281.4, though it is still some distance from its 52-week high. Its standalone gold loan AUM grew 30.1% year-on-year to Rs 30,236 crore. However, the company reported a net yield of 19.7% (down from 22% a year ago), higher net NPAs at 2.6% (up from 2.1%), increased impairments on financial instruments (Rs 120 crore vs Rs 53.2 crore), and consequently, a nearly 20% year-on-year fall in standalone net profit to Rs 375.9 crore.

In contrast, banks like HDFC Bank are facing pressure on their Net Interest Margins (NIMs). HDFC Bank's NIM on interest-earning assets was 3.4% in Q2 FY26, down from 3.7% a year earlier, partly due to a lag in deposit rate adjustments after the RBI's repo rate cut. While its advances grew 10% to Rs 27.46 lakh crore, its overall profit growth was moderated by higher provisioning.

Change in psychology

The surge in gold loans is attributed to households increasingly mortgaging their gold assets, valued in trillions of dollars, due to economic pressures. Harder employment opportunities and incomes not keeping pace with inflation are compelling people to seek funds for businesses, marriages, or emergencies. This has opened new avenues for digital customer acquisition and online loan servicing for NBFCs and banks.

Efficiency and Valuations

Muthoot Finance reported a Return on Equity (ROE) of 19.7%, significantly higher than Manappuram Finance's 16% and HDFC Bank's 14.3%. Valuations reflect investor optimism, with Muthoot Finance trading at a P/E of 20.6x and Manappuram Finance at 14.6x. HDFC Bank trades at a P/E of 21.4x. Gold loan NBFCs are expected to maintain strong growth prospects.

Impact

This news significantly impacts the Indian financial sector, particularly the gold loan NBFC segment, boosting investor confidence and potentially driving stock performance for companies like Muthoot Finance and Manappuram Finance. It also highlights shifts in consumer financial behavior. Rating: 9/10.

Difficult Terms Explained:

• NBFCs (Non-Banking Financial Companies): Financial institutions that provide banking-like services but do not hold a full banking license. They offer loans and other financial products but cannot accept demand deposits.
• RBI (Reserve Bank of India): India's central bank, responsible for monetary policy, regulation of banks, and currency issuance.
• AUM (Assets Under Management): The total market value of all financial assets that a financial institution manages on behalf of its clients. For gold loan NBFCs, this refers to the total value of gold loans disbursed.
• NIM (Net Interest Margin): A measure of the difference between the interest income generated by a financial institution and the interest it pays out to its lenders (like depositors), expressed as a percentage of its interest-earning assets. It indicates profitability from core lending operations.
• ROE (Return on Equity): A measure of a company's profitability in relation to its shareholders' equity. It indicates how effectively a company is using its shareholders' investments to generate profits.
• NPAs (Non-Performing Assets): Loans for which the borrower has not made scheduled payments of principal or interest for a specified period (typically 90 days).
• Stage III Loan Assets: A classification under Ind AS 109 (Indian Accounting Standards), indicating loans that have experienced a significant increase in credit risk since initial recognition and are considered impaired or non-performing.
• P/E (Price-to-Earnings Ratio): A valuation ratio that compares a company's current stock price to its earnings per share. A higher P/E ratio may indicate that investors expect higher earnings growth in the future.