Vehicle finance and microfinance arms, once seen as growth drivers, faltered after the pandemic, hit by weak recoveries and high delinquencies. Now, the non-banking financial company (NBFC) is leaning on its gold-loan expertise to steady those units. Over the past month, Muthoot has infused ₹700 crore into two subsidiaries— ₹500 crore into Muthoot Money (vehicle loans) and ₹200 crore into Muthoot Homefin (affordable housing)—as part of a broader strategy to stabilize operations and improve profitability.
“Muthoot Money was doing high-purchase finance. Gradually, that book is running down and today it is doing more of gold loans to make up for the high-purchase portfolio which was not doing well. The company is now doing well and has started making profit, so they needed funding,” said managing director George Alexander Muthoot.
Initially a vehicle financier, Muthoot Money offered loans for two-wheelers, cars, and used commercial vehicles, largely in Hyderabad and parts of Karnataka. Post-pandemic, recoveries were weak, and delinquencies spiked, prompting the company to shrink the book from ₹600 crore to about ₹100 crore currently.
Belstar Microfinance is also shifting gears. Recent regulatory changes cut the required share of microfinance assets from 75% to 60%, allowing institutions to diversify up to 40% of their loan books. Leveraging this, Belstar has started offering gold loans, opening 25 branches with plans for more.
Muthoot was blunt about the rationale. “Otherwise, how will Belstar make a profit? They are only giving unsecured loans. In secured loans, we are more comfortable with gold loans, where we have some strength,” he said.
The group today has seven subsidiaries, including vehicle finance, affordable housing, microfinance, insurance broking, asset management, and an overseas arm in Sri Lanka. But non-gold businesses remain small—about ₹4,000 crore compared with Muthoot Finance’s consolidated book of ₹1.3 trillion.
Gold remains the anchor
For Muthoot, gold loans continue to be the most reliable engine of profitability, offering wide margins and minimal credit costs. Demand is expected to sustain, especially as banks and NBFCs pull back on unsecured lending such as personal loans and microfinance.
Fitch Ratings, which recently upgraded Muthoot Finance’s long-term issuer rating to BB+ from BB, cited “competitive advantages, business profile and risk management” as key strengths.
“The expanding market for gold-backed loans in India—amid a shift in borrower preference towards gold loans—should benefit MFL (Muthoot Finance Ltd), which is the market leader in this segment with long-standing operations,” Fitch noted in an August report.
It highlighted that Muthoot has gained market share in gold loans over the past two years, helped by tighter regulations that have slowed smaller lenders. As of 30 June, gold loans made up ₹1.1 trillion of its ₹1.3 trillion loan book, or about 86% of consolidated gross loans.
Muthoot Finance reported a consolidated net profit of ₹1,974 crore for Q1FY26, up 65% on year, largely led by a 45% rise in interest income to ₹6,288 crore. On a standalone basis, Muthoot Finance posted a net profit of ₹2,046 crore up 90% on year.
The ratio of stage 3 assets, equivalent to non-performing loans (NPAs) of banks, stood at 2.58% as of June 30, an improvement from 3.41% a quarter ago and 3.98% a year ago.
Looking ahead
Founded in 1939 in Kerala, Muthoot Finance today commands a market capitalization of over ₹1 trillion. Its challenge now is less about relevance—gold lending remains a steady growth story—and more about proving that its diversification push can eventually stand on its own legs.
“We are just testing these waters, especially with our own borrowers. We are trying to assess so that lead generation cost is reduced. We do business with non-Muthoot customers as well but we would like to reduce our cost of acquisition by giving our own borrowers preference,” Muthoot said.
He added that, like other NBFCs, the company is seeing some stress in small business and MSME loans but continues to lend in the segment for diversification.
“When we looked at our customers, the people taking gold loans were also taking business loans and personal loans. So we thought why not? We fill in that gap because you might as well service it, at least some of it, if not all,” he said. The non-gold portfolio currently accounts for 10% of the consolidated book. Muthoot expects this share could rise to 15% over time, though gold loans will remain its mainstay.
“You need to learn that business as well because we need to keep the plumbing ready,” Muthoot said, adding that the parent is open to infusing more capital if subsidiaries show growth.
The bigger test for Muthoot will be whether its struggling subsidiaries can find a path to profitability, even as gold loans remain the overwhelming driver of returns.