Gold prices are scaling new highs every trading session over the past few days. This is largely driven by the uncertainties emanating from the Trump administration and the conflicts in different regions across the world. And while middle class consumers across the country are increasingly finding it difficult to buy gold close to Diwali at nearly Rs 1,20,000 per 10 grams, investors have turned bullish on this sector.
And gold loan financiers like Muthoot Finance, Manappuram Finance and IIFL Finance are trading close to their 52-week highs. For instance, Muthoot Finance on Tuesday trade was 0.5% higher at Rs 3,244 on Tuesday, and not too far from its 52-week high of Rs 3,257.6 that was reached on the same trading day.
Manappuram Finance was broadly flat at Rs 291 on Tuesday, and not too far from its 52-week high of Rs 298 that was reached on 17 September 2025.
And IIFL Finance, which also provides gold loans, was 1.66 % higher at Rs 477 on Tuesday, and its 52-week high of Rs 538 was reached on 24 July 2025.
Investor bullishness for the above NBFCs comes at a time when credit extended against gold jewellery has surged – according to RBI data, gold loans outstanding in the system on 22 Aug 2025 was 3,05,814 crore vis-a-vis Rs 1,40,391 crore on 23 August 2024, a rise of 117.8 % during this time period.
NBFCs broadly account for 55- 60 % share of the total gold loans disbursed by banks and NBFCs combined, as per various estimates.
To take advantage of the above surge in demand for gold loans, Muthoot Finance had recently raised $ 150 million dollars (nearly Rs 1,300 crore) at 6.375%.
And in late March 2025, Bain Capital had recognised the growth opportunities in this sector with its announcement to acquire joint control of Manappuram Finance at Rs 236 per share.
Gold Loans – Higher NIMs
Apart from strong gold loan growth, of equal importance is the net interest margin (NIM) for gold loan players like Muthoot Finance. The company’s NIM was 12.15 % in the June 2025 quarter vis-à-vis 11.51 % a year.
For SBI, its NIM in its domestic operations was 3.02 % in the June 2025 quarter vis-à-vis 3.35 % a year earlier while for HDFC Bank it was 3.5 % on interest earning assets in the June 2025 quarter vis-à-vis 3.7 % a year earlier. The difference between the gold loan focused Muthoot and the large banks is clear.
Meanwhile, Muthoot Finance had grown its standalone net profit in the June 2025 quarter to Rs 2,046.2 crore, a rise of nearly 90 % on a y-o-y basis.
Change in psychology
The yellow metal has been a traditional savings avenue for Indian households with nearly 25,000 to 27,000 tonnes held in the country and valued at a few trillion dollars, as per various estimates. And with employment opportunities getting harder and / or incomes not keeping up with inflation in prices of goods and services (especially in urban area), households are increasingly mortgaging their gold with NBFCs and banks to raise funds for business, marriages or meeting family emergencies.
This is turn has created new business opportunities for banks and NBFCs with new loan customers being increasingly acquired digitally along with online loan repayment options.
Outlook and valuations
Mannapuram Finance trades at a P/E of about 15 times estimated standalone FY26 earnings while Muthoot Finance trades at about 17 times estimated standalone FY26 earnings.
The mid-sized bank, Federal Bank, trades at a P/E of nearly 12 times estimated standalone FY 26 earnings.
The growth prospects for gold loan NBFCs do look bright over the medium term. However, valuations for these gold loan NBFCs does look expensive in the short term. Only time will tell whether the anticipated growth was justified or not.
Amriteshwar Mathur is a financial journalist with over 20 years of experience.
Disclosure: The writer and his family have no shareholding in any of the stocks mentioned in the article.
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