Muthoot Finance share price hits record high as rally extends to 7th straight day; m-cap crosses ₹1 lakh crore

Muthoot Finance share price in focus: Shares of Muthoot Finance, a non-banking financial company (NBFC) specialising in gold loans, extended their winning streak for the seventh straight session on Monday, June 9, rising 4.2% to hit a fresh all-time high of ₹2,548 apiece. This rally also pushed the company’s market capitalisation past the ₹1 lakh crore mark for the first time.

Apart from Muthoot Finance, other major gold NBFC stocks, including Manappuram Finance and IIFL Finance, have also been trending higher on Dalal Street in recent sessions, gaining over 10% in two sessions (including today) after the Reserve Bank of India eased rules for small-ticket gold loans.

RBI raises LTV cap on small gold loans, eases borrowing norms

The Reserve Bank of India (RBI), on Friday, released its final guidelines on gold loans, which include more relaxed Loan-to-Value (LTV) norms compared to the draft proposals. Under the revised norms, the LTV ratio limit for gold loans below ₹2.5 lakh has been increased to 85% from 75%.

Additionally, there is no LTV cap for income-generating gold loans across banks and NBFCs. The RBI has also removed the explicit requirement to maintain provisions in the event of an LTV breach. Unlike the draft guidelines, a detailed credit assessment will now only be required for high-ticket loans above ₹2.5 lakh.

According to analysts, the final guidelines are more balanced and provide much-needed flexibility to gold financiers. Unlike the draft circular, the final rules do not mandate provisioning in case of an LTV breach. Instead, the only requirement is that lenders must outline the actions to be taken in such cases within their credit policy.

In April, the RBI had proposed stricter rules for the disbursement and monitoring of gold loans, which are widely used by low-income borrowers. The central bank had invited comments on the draft by mid-May. Later that month, the Union Finance Ministry urged the RBI to relax the proposed rules to ensure that small borrowers are not “adversely impacted.”

Muthoot benefits on two fronts—growth and yields

According to domestic brokerage firm Kotak Institutional Equities, Muthoot Finance is likely to benefit from loan growth and higher yields under the RBI’s revised gold lending framework. The brokerage notes that the effective loan-to-value (LTV) ratio for Muthoot declined by 600 basis points in Q4FY25, following a sharp rally in gold prices, creating some headroom for growth in the near term.

It observed that about 28% of Muthoot’s loan book comprises loans below ₹0.1 million, 35% in the ₹0.1–0.3 million range, and 38% above ₹0.3 million. Thus, a significant portion of the loan book is expected to fall within the 85% LTV cap.

"Apart from increasing headroom for growth, higher LTVs also support yields. Notably, gold loan internal rates of return (IRRs) are linked to ticket sizes and LTVs. In that sense, gold loan companies compete with both banks and moneylenders," the brokerage said.

As a result, Kotak has revised its estimates upward by 8–9% to reflect stronger near-term loan growth for Muthoot Finance. and also revised the target price higher to ₹2,550. However, given the limited upside from the stock’s recent closing price, it has retained a 'reduce' rating on the stock.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.