Gold futures have once again hit a new 52-week high, reaching Rs. 1,01,078. With prices rising 30 percent since January of this year, this sharp rally marks a strong upward trend and is proving highly beneficial for gold financing NBFCs.
Leading gold financing companies such as Muthoot Finance and Manappuram Finance are trading at their 52-week highs, fueled by recent RBI directives and a sharp surge in gold prices, which have reached an all-time high. Explore how the rise in gold prices impacts gold financing companies and strengthens their market performance.
Impact of Rising Gold Prices on Gold Loan Companies
When gold prices go up, the same amount of gold is worth more. So, gold loan companies can give bigger loans for the same gold, even though the LTV ratio remains the same, which means that people can borrow more money with the same gold, so more people take gold loans. Since the gold is worth more, it will give the company more safer cushion.
Further, when gold prices are high, the gold pledged as collateral holds greater value, giving lenders more confidence in recovering their money in case of default. This reduced risk encourages lenders to offer lower interest rates on gold loans to attract more borrowers.
New RBI Update
The revised gold loan rules have eased borrowing, especially for small borrowers. For loans up to Rs. 2.5 lakh, the LTV cap has increased to 85 percent (including interest) from the previous 75 percent. Loans between Rs. 2.5 lakh and Rs. 5 lakh now have an 80 percent limit, while loans above Rs. 5 lakh remain capped at 75 percent.
Additionally, small-ticket loans (up to Rs. 2.5 lakh) no longer require detailed credit checks, and lenders don’t need to track how the funds are used, making the process faster and more convenient.
After the new gold norms were introduced, global investment bank Morgan Stanley had picked Muthoot Finance & Mannappuram Finance as the Key beneficiaries for the new directives.
Gold is considered a dependable safe-haven asset, especially during economic crises and inflation. Its value remains stable when currencies lose purchasing power, and investors favour it as it’s not linked to corporate performance. With global acceptance, high liquidity, and limited supply, gold consistently retains its appeal as a reliable store of value.
Written By Abhishek Das
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