Investor Sentiment Dented by RBI’s Draft LTV Norms Despite 43% PAT Surge

Muthoot Finance shares plunged 7% on the BSE to close at ₹2,104.40 on May 15, despite reporting a robust 43% year-on-year rise in standalone profit after tax (PAT) to ₹1,508 crore for the March quarter (Q4FY25). The selloff was triggered by investor concerns over the Reserve Bank of India’s (RBI) draft guidelines related to loan-to-value (LTV) norms for gold loans, which analysts believe could constrain disbursements and impact near-term growth for non-banking financial companies (NBFCs) focused on gold lending.

While Q4 saw strong traction in gold loan demand, aided by tonnage expansion and new customer acquisitions, the shadow cast by potential regulatory tightening overshadowed the earnings beat. Full-year FY25 PAT stood at ₹5,201 crore, marking a 28% rise from ₹4,050 crore in FY24. The company also reported strong AUM growth, a sequential dip in net interest margins (NIM), and lower quarter-on-quarter credit costs—demonstrating efficient risk and cost management.

Highlights:

Q4FY25 PAT surged 43% YoY to ₹1,508 crore; FY25 PAT up 28% to ₹5,201 crore.
AUM expanded with robust gold loan growth, driven by tonnage and new customers.
NIMs declined slightly; credit costs improved sequentially.
Stock closed 7% down at ₹2,104.40, hitting a low of ₹2,084.60 intraday.

RBI’s Draft Norms Create Overhang; Uncertainty Drives Valuation Pressure

The sharp correction in Muthoot Finance stock stemmed not from operational underperformance but rather from the market’s reaction to the RBI’s draft LTV guidelines. According to Motilal Oswal, if implemented, the new norms will reduce the permissible LTV ratio for gold loans, affecting disbursement capacity and demand dynamics. The brokerage emphasized that until there is clarity from the final version of the guidelines, the outlook on gold loan growth will remain clouded, and investor appetite could remain muted in the short term.

Nuvama Institutional Equities warned that if the RBI maintains its draft stance, it could push borrowers toward informal money lenders, undermining formal sector gains in financial inclusion. Despite this regulatory risk, Nuvama noted that Muthoot Finance remains structurally well-placed to benefit from strong gold demand and rising gold prices, which could support earnings momentum even under tighter lending rules.

Highlights:

RBI’s draft LTV norms seen as a threat to near-term loan growth.
Brokerages flag regulatory overhang until final guidelines are released.
Analysts worry about shift of borrowers to unregulated lenders.
Structural demand for gold loans seen intact; gold prices offer cushion.

Brokerages Diverge Amid Strong Fundamentals and Regulatory Risk

Broker views on Muthoot Finance remained mixed following the Q4 results and RBI’s policy development. Motilal Oswal reiterated a ‘Neutral’ rating with a target price of ₹2,400, citing potential short-term valuation pressure and policy overhang. Nuvama Institutional Equities retained a ‘Buy’ rating and revised its target price upward to ₹2,625 from ₹2,550, underscoring Muthoot’s consistent performance and gold rate support.

Jefferies echoed this optimism, maintaining a ‘Buy’ rating at a target of ₹2,660, arguing that elevated gold prices would help cushion any disbursement drag caused by the proposed LTV restrictions. Bernstein also assigned an ‘Outperform’ rating at ₹2,500, citing long-term structural drivers. Meanwhile, Morgan Stanley held a more cautious stance with an ‘Equal-weight’ call and a target price of ₹2,400.

Highlights:

Motilal Oswal: Neutral; TP ₹2,400; flagged near-term valuation overhang.
Nuvama Equities: Buy; TP raised to ₹2,625; sees strong growth continuity.
Jefferies: Buy; TP ₹2,660; higher gold prices to soften LTV impact.
Bernstein: Outperform; TP ₹2,500; positive long-term outlook.
Morgan Stanley: Equal-weight; TP ₹2,400; cautious amid regulatory risk.

Muthoot Finance Faces Balancing Act Between Growth and Regulatory Uncertainty

Despite strong earnings momentum and growing demand for secured gold-backed credit, Muthoot Finance’s immediate market outlook remains tied to regulatory developments. Analysts agree that the company’s fundamentals remain intact, but the RBI’s forthcoming final guidelines on LTV could determine the stock’s re-rating or further downside. The next steps from the central bank and the company’s response in terms of loan structuring and risk management will be crucial to watch in FY26.