Muthoot’s solid gold loan AUM loses sheen amid asset quality stress, stiff competition
Muthoot Finance shares slid to a new 52-week low of ₹2,305 on the National Stock Exchange on Monday as investors tried to digest the asset quality deterioration in the September quarter (Q2FY27) with rising loan delinquencies. This was when its mainstay gold loan assets under management (AUM) increased by 43% year-on-year, backed by higher prices, improved tonnage and client additions.
Better yields led to a 152 basis points (bps) sequential rise in net interest margin (NIM) to 11.93%. On the flip side, credit costs increased, with risky stage-III assets soaring sequentially to ₹7,268 crore in Q2 from ₹3,926.5 crore in Q1, and stage-II assets surging to ₹23,466 crore from ₹1,876 crore in Q1 and ₹1,062 crore in Q4FY26.
Following implementation of the Reserve Bank of India’s revised regulations effective 1 April, Muthoot introduced structured monthly interest-servicing gold loan schemes. Earlier, it offered bullet repayment loans, wherein customers could pay interest at any point during the loan tenure without any prepayment penalty.
This transition led to missed payments and consequently, a sharp movement into stage-II and stage-III buckets. As customers get accustomed to the new repayment cycle, the management expects asset quality stress to ease. It doesn’t view this spike as an indication of underlying borrower stress.
Yield compression
But a pivot toward monthly interest repayment, which necessitates higher collection efforts, raises the risk of a structural compression in yields and NIM for NBFC gold financers. Motilal Oswal Financial Services noted that the RBI’s new regulations on gold lending have brought in a trade-off between growth and yields.
“In addition, the highly competitive intensity and aggressive foray of multiple deep-pocketed AAA (or AA+ rated) NBFC franchises into gold loans could result in market share losses for incumbents,” it said.
Muthoot raised its FY27 gold loan AUM growth guidance to 25% from 15% earlier. H1FY27 gold loan AUM is up 16%. NIM is seen in the 10.5%-11% range. However, with gold prices consolidating now, rising funding costs (with the RBI in tightening mode) and competitive pressures could weigh on the gold AUM growth trajectory.
While Muthoot should continue to deliver industry-leading profitability, with return on assets of 5.6-5.8% and return on equity of 26%, loan growth could moderate from the extraordinary levels in the previous year, said Nirmal Bang Institutional Equities.