'NPA Rise Does Not Signify Stress in Gold Loan Industry'

muthoot fin MD cites lending rule changes Atmadip Ray Kolkata: India's largest gold loan company Muthoot Finance said a recent rise in bad loans is due to structural changes in lending rules and is not a reflection of underlying stress. "Borrowers will take a little while to understand the new structure," Alexander George Muthoot, managing director told ET. "This does not signify any stress in the industry." Muthoot termed the current scenario as "only a transition phase where people have to just get used to this kind of a new way of servicing the loan which was not there in the past." "The payment will be regularised over a few quarters," he said, speaking in one of his first media interactions since assuming charge on October 1.

Muthoot Finance reported a sharp rise in gross non-performing assets ratio to 3.9% at the end of September from 2.3% three months prior. Among other non-bank lenders, Bajaj Finance reported an increase in Stage 2 and 3 assets to 2% from 1.9% in the June quarter.

The company attributed it to the transitional phase and emphasised that it won't impact its credit cost. Shriram Finance too saw its gross Stage 3 gold loan assets rising to 3.1% from 2.6% over the same period. The Reserve Bank of India told lenders across the spectrum to switch to equated monthly instalments or interest only monthly payments for more than 12-month loans.

Bullet repayment loans where principal and interest are paid in lump sum at the end of the tenure are capped for a maximum one-year period. Automatic rollover of loans aren't allowed anymore for borrowings up to one-year maturity. The new rules became effective from April 1. "It's too early to make an assessment on the new regulation," said Muthoot. "Let's see how things progress, probably it will lead to better credit discipline." He said the company maintains an average loan-to value ratio of 65%, providing it a buffer in case of repayment failures by borrowers after a certain period. "If we have to remove NPAs, we can easily auction this gold, recover our principal and interest," he said. "But we always ensure that we use auctions as a last resort when everything else fails. About 98% of our customers pay their interest on time." Meanwhile, taking advantage of easy branch opening norms, Muthoot with 5,230 branches across India has accelerated the pace of physical expansion.

It opened 262 branches in the first half of FY27, which it plans to match in the fiscal second half. RBI said large gold loan companies don't need to take prior approval before opening new branches. Muthoot Finance had 204 tonnes of pledged gold at the end of September, up from 196 tonnes six months prior. Assets under management surged 42% year-on-year to 1.9 lakh crore, including gold loans of 1.8 lakh crore. Indians are estimated to have monetised 1,500-2,000 tonnes of gold, while a Morgan Stanley report in 2025 estimated the country's total household wealth in gold at around 34,600 tonnes.