Facing a sharp margin squeeze amid intensifying competition, gold loan companies have been forced to take measures to retain customers and protect profitability. A CEO of a private-sector NBFC said, “Intensifying competition is eroding profitability, and therefore established players are being forced to innovate and defend market share against aggressive new entrants.”
For established leaders like Muthoot Finance, Manappuram Finance, and Muthoot Fincorp, the surge in competition has created significant challenges. Muthoot Finance, the largest player, has reported a decline of 4–5 tonnes in the third quarter ended December 2025, alongside a drop in its active customer base by 40,000—from 6.57 million (Q2FY26) to 6.53 million (Q3FY26).
Yield Paradox
Manappuram Finance has cut yields to grow the business, added the CEO. Over the last five quarters, Manappuram Finance has witnessed a sustained 370 basis points (bps) decline in net yields—from 22.2% as on Q3FY25 to 18.5% as on Q3FY26. Interestingly, gold prices in the same period have jumped 75% to Rs 1.33 lakh per 10 grams on MCX, from Rs 76,000. In the same period, Manappuram Finance added 29,000 gold customers, bringing its total to 2.62 million from 2.59 million.
Not just Manappuram, but the decline in yields has squeezed profitability across the sector. Yields, which were 20–22% five years ago, have steadily declined to below 19% today. “Competition has driven yields down, with no player currently exceeding 18–19%, compared with 20–22% five years ago,” said Manish Mayank, Business Head – Gold Loans, IIFL Finance.
Portfolio yields currently stand at 18–19%, while borrowing costs hover around 9–9.5%, leaving net margins at just 3–3.5%. Boarding costs, estimated at 15–16%, add further pressure. Analysts note that the gold loan business margin, now around 9%, could decline by another percentage point in the near term. “We expect yields to fall further by another 1%, reflecting the aggressive pricing strategies adopted by both new entrants and established lenders,” added a senior official of a domestic gold loan NBFC.
Lenders across the industry are scaling their businesses, as gold loans offer a relatively secure product compared to microfinance (which has faced stress in recent quarters) and personal loans. Diversification into gold loans is seen as a way to stabilise portfolios, given the collateralised nature of the product and its short tenure of around four months.
Battle for the Retail Asset
L&T Finance this week announced it will double its gold loan branch network to over 260 branches nationwide. At the same time, AU Small Finance Bank has entered the segment with the launch of exclusive gold loan branches—beginning with two in Gujarat and planning to open nine more across states before March 31. “Gold loans play a critical role in providing quick access to credit while supporting asset quality and portfolio stability. It also aligns with our strategic focus on secured retail asset lending across Retail, Agri, and MSME segments,” said Uttam Tibrewal, ED & Deputy CEO, AU Small Finance Bank. Sources say players such as Poonawalla Fincorp, Bajaj Finance, and Capri Global are also aggressive and scaling up their businesses.
“Lower loan-to-value (LTV) ratio due to surge in gold price over the past year has also added to the pressure, as many customers don’t seek additional funds or fresh loans,” added a senior banker with the private sector bank. On average, LTVs have fallen to 50–60% from the regulatory ceiling of 75%, reflecting lenders’ caution amid volatile gold prices.
“While the gold loan industry remains attractive due to its secured nature and short tenure, intensifying competition is putting pressure on profitability. With yields expected to decline further and margins under pressure, the sector faces a challenging road ahead,” added Mayank of IIFL Finance.