The Indian gold loan industry, a critical lifeline for millions seeking quick credit, has been plunged into turmoil following the Reserve Bank of India’s (RBI) recent changes in regulatory guidelines. Key players like Manappuram Finance and Muthoot Finance, which dominate the sector, are facing mounting pressure as new compliance measures disrupt business operations and investor confidence.
What the New Guidelines Say
April 23, 2025 saw the RBI roll out a batch of updated norms that are aimed at enhancing borrower protection, gold loan transparency, and sound lending in the sector. The changes of note include:
Tighter Loan-to-Value (LTV) Ratio: The LTV ratio is now limited to 75% of the gold’s market price from the softer limit in the pre-pandemic period.
Mandatory Direct Transfer of Loan Proceeds: Loan proceeds now have to be credited directly to the bank account of the borrower, doing away with the practice of cash disbursement.
Improved Audit Requirements: Lenders are now required to carry out regular third-party audits of gold valuations and security arrangements for storage.
Stringent KYC Norms: Borrowers will have to undergo stricter identity and background verification procedures, such as PAN-Aadhaar linkage and live photo verification.
While the RBI has claimed that these changes are designed to introduce more financial discipline and mitigate systemic risks, the response from the industry has been immediate and dramatic.
Impact on Leading NBFCs
The two largest players in India’s gold loan sector, Muthoot Finance and Manappuram Finance, have already faced the fallout. Stock in both fell by over 15% in the two days after the revelation. Investors are alarmed by the impact on volumes, profit margins, and operational freedom.
Manappuram, which is heavily reliant on rural customers, has complained about the transition from cash lending. “Though we appreciate the regulation, going all out to digitize disbursements might exclude a major portion of our clients who are used to immediate access to cash,” said one senior executive on condition of anonymity.
Muthoot Finance also has cautioned against a short-term fall in new loan originations, especially in rural and semi-urban segments where digital banking penetration is still low. The company is now racing to beef up its digital infrastructure and customer onboarding capabilities to remain compliant.
Ripple Effect Across the Sector
Smaller NBFCs and cooperative lenders will be even more severely impacted. In contrast to the big players, most smaller lenders do not have the technology and infrastructure to quickly respond to the new norms. For some, the compliance cost will be more than the revenue potential, resulting in potential exits from the gold loan business itself.
“There is a real possibility that we’ll see consolidation in this space,” says financial analyst Neeraj Awasthi. “Smaller firms will either get acquired or shut down due to compliance pressures. It’s a shake-up that may result in fewer but stronger players in the long run.”
Borrowers Bear the Brunt
The most direct suffering, however, is likely to be experienced by borrowers themselves. Gold loans have been a common means of covering emergency cash requirements — from doctor’s bills to farm inputs — for many years. The convenience and rapidity of cash-based lending made it especially suitable for those with no access to formal banking.
Now, with tighter controls and slower processing, lenders could find themselves shut out of fast credit. “We waited three days for approval that previously took an hour,” said Sangeeta Devi, who is a farmer from Uttar Pradesh. “We cannot wait when there’s a hospital bill.”
Also, the new LTV ratio translates into smaller loans to borrowers using the same amount of gold. This could translate into added financial pressure, especially against the backdrop of inflation and higher cost of living.
The Diverse Views of Experts
While the industry players in general reacted with unease, the finance professionals are more mixed in their views. Some believe the RBI action is timely and warranted.
“Unbridled growth of the gold loan industry and chances of over-leveraging were real,” according to Dr. Priya Menon, Faculty of Finance, IIM Bangalore. “Regulatory norms would stabilize the sector and safeguard the borrowers from harassment.”
Others are concerned that the abrupt rollout is not nuanced and does not take ground realities into account. “A phased rollout with pilot implementations would have been more suitable,” says Abhishek Kaul, a fintech policy advisor. “Widespread reforms can cause more harm than good if not followed by infrastructure and awareness.”
What Lies Ahead
Over the next few months, the industry can expect an intense period of transformation. The big players will invest in digitalization, and the smaller ones might innovate or exit. Borrowers would have to cope with new processes, and regulators might come under increasing pressure to relax some of the restrictions — particularly with regard to rural disbursement modes.
There is also speculation that the RBI can revisit and adjust the norms based on feedback and new challenges. Some NBFCs have already approached the central bank for clarifications and staggered implementation timelines.
Conclusion
The RBI’s new gold loan guidelines mark a turning point for an industry that has operated with considerable autonomy and flexibility. While the long-term goal of transparency and financial inclusion is commendable, the short-term consequences have created a ripple of uncertainty. As the dust settles, the sector will likely emerge leaner, more regulated, and — ideally — more resilient. But the road ahead is undeniably challenging for lenders, borrowers, and regulators alike.
