JPMorgan Bullish on Indian Gold-Loan NBFCs: Overweight Ratings

JPMorgan has initiated coverage on three prominent Indian gold-loan lenders: IIFL Finance, Manappuram Finance, and Muthoot Finance, assigning an “overweight” rating to all of them. The brokerage firm anticipates significant “structural, not cyclical” growth for the gold loan sector.

This bullish outlook projects gold loans’ share of system credit in India to double from the current 5% to approximately 10% over the next five years. This growth is attributed to a cultural shift where gold is increasingly viewed as a monetizable asset.

JPMorgan’s Target Prices and Upsides

• IIFL Finance: Target Rs 750, suggesting an 18% upside, identified as a “re-rating play on turnaround.”
• Manappuram Finance: Target Rs 395, indicating a 13% upside, citing management transition backed by Bain Capital.
• Muthoot Finance: Target Rs 3,400, implying a 15% upside, with its book value compounding highlighted as a key long-term driver.

IIFL Finance stands as JPMorgan’s top pick in the sector. While Muthoot’s profitability might have peaked, it is expected to normalize at industry-leading levels.

Key Drivers for Sector Expansion

• Low market penetration: Only about 11% of gold held by the bottom 60% of households is currently pledged for loans.
• Shift from unsecured credit: Gold loans’ share in retail credit disbursements surged to 41% in FY26 from 18% in FY23.
• Rate differential: Gold loans are significantly cheaper, offering a 300-600 basis point rate differential compared to unsecured credit.

This shift has largely occurred at the expense of unsecured personal and small business loans, whose share declined from 55% to 41% during the same period. Growing financial literacy and banks’ reduced appetite for unsecured lending, following recent stress cycles, also contribute to this trend.

Robust Asset Quality and Regulatory Landscape

Gold loans boast the lowest bad-loan ratio among retail credit categories, standing at approximately 0.2%. This is considerably lower than mortgages and auto loans at 0.5-0.6% and unsecured products above 1%.

Strong asset quality is maintained through robust collateral coverage and conservative loan-to-value (LTV) ratios of 55-65%. JPMorgan expects recent regulatory changes, effective April 2026, which adjust headline LTV caps, to have a broadly neutral impact on established gold-NBFCs.

Potential risks to the sector include a sharp decline in gold prices and heightened competition from banks.