Formalising India's Vast Informal Gold Loan Sector A Key Challenge: Muthoot Fincorp CEO

With nearly 60% of India’s gold loan business still operating in the informal sector, the biggest challenge for the financial ecosystem is to bring these loans under the formal and regulated framework, said Shaji Varghese, chief executive officer of Muthoot Fincorp, while speaking to NDTV Profit on Wednesday.

The comments come in the backdrop of a sharp surge in loans issued against the precious metal. The outstanding gold loans surged to Rs 2.94 lakh crore as on July 25 this year, up 122% compared to the same period in 2024, according to the recent data released by the Reserve Bank of India.

Varghese noted that gold loans are fundamentally different from other forms of consumer credit, as they are driven by household-level financial decisions and emotional considerations. “Defaults in this segment are very low, with auction rates of 1-2%. Families usually take gold loans only when they see cash flows ahead. The emotional attachment to gold acts as a natural safeguard,” he told NDTV Profit at the sidelines of the Global Fintech Fest 2025.

“Gold loans differ from structured personal loans. They offer flexibility, no prepayment penalties and can be repaid anytime. Whenever consumers have liquidity, they repay their gold loans quickly. As consumption picks up and GST cuts take effect, repayment rates and credit demand are expected to remain healthy,” he said.

Highlighting the inclusivity of the business, he said around 80% of gold loans are of less than Rs 60,000 in value. Muthoot Fincorp currently undertakes about eight lakh disbursements, amounting to nearly Rs 9,000 crore, with a significant portion catering to small borrowers. “We are supplying credit to the grassroots level,” Varghese said.

In June, the central bank increased the loan-to-value ratio for gold loans up to Rs 2.5 lakh to 85%, from the previous 75%. For loans between Rs 2.5 lakh and Rs 5 lakh, the LTV ratio has been set at 80%, while it will remain at 75% for loans above Rs 5 lakh. Lenders have until April 1, 2026, to comply with the revised norms.

Varghese said the regulator’s intention was clearly to harmonise the rules across entities, streamline practices, and strengthen governance. “The regulatory clarity makes it a fantastic environment to operate in. The framework is well articulated and focuses on fair practices with the customer at the centre. If it’s good for the customer, it’s good for all,” he said.

The RBI’s latest guidelines also exempt borrowers with a ticket size of up to Rs 2.5 lakh from detailed credit assessment, while lenders will have to conduct thorough checks for loans above this threshold. Consumption gold loans will now be capped at a 12-month tenure, and documentation will be standardised across all branches.

He added that Muthoot Fincorp, which grew nearly 40% year-on-year in fiscal 2025, expects the momentum to continue.