As it approaches the gold price, the panorama is changing with high impacts for key players. IIFL Finance, which has been identified as the fastest growing entrepreneur in this sector, has faced setbacks following the implementation of a regulatory ban by the Reserve Bank of India (RBI). This ban prevents IIFL Finance from lending gold do not interfere with the sale of existing gold loans.
Kotak Institutional Equities announced its reaction to the ban, stressing that it enables competition, particularly Muthoot Finance Limited, to increase its market share by a large percentage. Muthoot Finance, a well-established player in the gold lending sector, is poised to fill the vacancy left by IIFL Finance on short notice. Despite forced protests from banks, Muthoot Finance is expected to take advantage of the unusual scenario given its strong position and RBI approval for opening a new branch.
Several regulatory concerns for IIFL finance restrict gold loan disbursement, including differences in accounting, deviations from popular sales channels, liquidity has a clear lack of approach to ancillary spending and over-funding. The issues of yam and weight differentials are still unresolved, which requires work in the domestic regulations of IIFL Finance and RBI.
Meanwhile, Muthoot Finance is expected to take advantage of favorable market conditions, including the tightening of the gold tax and lack of greater competition from NBFCs like IIFL Finance. It is predicted to enjoy gold loan growth because the annual increase in the price of gold is normal and higher was issued in December 2023.
Kotak Institutional Equities generates 16% loan growth for Muthoot Financial in FY2024 and delivers ongoing revenue growth of 15% in FY2025-26. Despite capacity pressures due to higher borrowing costs, Muthoot Finance’s strategic position and favorable market conditions are expected to fuel its growth trajectory.
In terms of valuation, IIFL Finance, despite significant gains in the gold loan market over the past few years, faces regulatory challenges that could hamper its growth potential in the near future. The choice-of-law argument recommends that consumers exercise caution.
Exactly, at the same time that IIFL Finance is dealing with regulatory hurdles, Muthoot Finance is emerging as a potential gainer in the gold bond market, poised to offer opportunities through regulatory restrictions it will be given to its rivals.
