Muthoot Finance’s loan book grew 42% to a record ₹2.09 lakh crore, as Indian families borrowed against gold at the highest prices on record. The growth is very profitable, but it also shows households under financial pressure, and exposes the company to a fall in gold prices.
Muthoot Finance, India’s largest gold loan company, reported consolidated net profit of ₹3,278 crore for the September quarter, up 36% from a year earlier. Standalone profit rose 27% to ₹2,977 crore, from ₹2,345 crore.
Loan growth was the main driver. Consolidated loan assets under management reached a record ₹2,09,317 crore, up 42% from a year earlier and up from ₹1,91,532 crore just three months earlier. That is ₹17,800 crore of new loans in one quarter.
Why gold loans are growing
Three factors explain the growth.
Gold prices are at record highs. 24-carat gold is above ₹1.4 lakh per 10 grams. A gold loan is based on the value of the gold pledged, so higher prices mean households can borrow much more against the same jewellery. A family’s gold is now worth considerably more as collateral than it was a year ago.
Unsecured credit is harder to get. Banks and NBFCs have cut back on personal loans and credit cards after RBI tightening and rising defaults. For many households and small businesses, a gold loan is now the easiest source of credit: fast, with little paperwork and no credit score needed.
Rules are more favourable. RBI changes effective this year raised the permitted loan-to-value ratio for smaller gold loans, so borrowers can get more against their gold.
What the growth shows
Gold loan growth is good for Muthoot’s earnings, but it also shows financial pressure on households. Indian families usually pledge gold when they need cash, for medical bills, school fees, business working capital or simply to cover expenses. A 42% rise in gold borrowing, during a period of inflation near 6%, high fuel costs and slowing growth, suggests many households are borrowing against their savings.
That fits a wider pattern this results season: companies selling to affluent consumers are doing well, while those serving lower and middle-income households are seeing more strain.
The risk: gold prices
The main risk for Muthoot is a fall in gold prices. If gold drops sharply, the collateral behind each loan falls in value. Borrowers may decide not to repay loans now worth more than their gold, and Muthoot would have to auction the jewellery, possibly at a loss.
Gold has risen because of the Iran war and global uncertainty. If there is a lasting peace deal and inflation eases, gold could fall quickly. Gold lenders usually limit this risk by keeping loan-to-value ratios well below 100% and by charging high interest, but a fast fall in prices would still hurt.
Competition
Banks are also pushing into gold loans. Scheduled banks already hold far more gold loans than NBFCs and are offering lower rates. Muthoot’s advantages are speed, its branch network in smaller towns and its expertise in valuing and storing gold.
For now, Muthoot is benefiting from both high gold prices and tight unsecured credit. The question is how long both conditions last.
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