Gold loan stocks saw a steep rise in their stock prices after the Reserve Bank of India governor, Sanjay Malhotra, announced changes in gold loan regulations, supporting small-ticket borrowers. The RBI will increase the Loan-to-Value ratio to 85% from the ongoing 75% for gold loans of up to Rs 2.5 lakh per borrower, which includes interest as well.
During the RBI’s monetary policy press conference today, Governor Sanjay Malhotra said that the final set of regulations for gold loans will be released soon – either today or latest by Monday.
To simplify, a borrower pledging a gold worth Rs 1 lakh will receive Rs 85,000 from here onwards, compared with Rs 75,000 earlier. The relaxation applies to smaller gold loans, making access to funds easier for households and small businesses.
Gold loan stocks give a thumbs up to RBI announcement
Following the announcement, the gold loan stocks surged. The share price of IIFL Finance rose 5.4% to an intra-day high of Rs 452.45. Muthoot Finance’s share price rallied 7.6% to an intra-day high of Rs 2,470. The share price of Kalyan Jewellers surged 2.5% from the day’s low to Rs 563.95. There was a sharp uptick in the stock price of Manappuram Finance, gaining 5% to an intra-day high of Rs 246.44.
“By front-loading these easing measures, the RBI is demonstrating its intent to proactively support domestic economic growth amid heightened global uncertainties. While such actions were expected to unfold gradually over time, the central bank’s bold move reflects its increased urgency to revive momentum in the face of external headwinds,” said Ajit Mishra, Senior Vice President of Research at Religare Broking.’
Finance Ministry’s note to RBI on gold loans
To add context, the Ministry of Finance had taken up the case for small borrowers a week back. The ministry, in a social media post, said that the government has urged the RBI to ensure that the “requirements of the small of the small gold loan borrowers are not adversely affected.”
“Draft Directions on Lending Against Gold Collateral issued by the RBI (Reserve Bank of India) have been examined by the Department of Financial Services, India, under the guidance of Union Minister for Finance and Corporate Affairs Nirmala Sitharaman. DFS_India has given suggestions to the @RBI to ensure that the requirements of the small gold loan borrowers are not adversely affected,” said the Ministry of Finance.