Budget 2026: Top 4 things FM Sitharaman should do for gold loan NBFCs
By George Alexander MuthootUnion Budget 2026 comes at a critical juncture for India’s growth journey. With political stability, resilient macro fundamentals and strong domestic demand, the government has an opportunity to deepen financial inclusion while accelerating credit-led growth. For the NBFC sector, particularly those focused on last-mile lending, the Budget can play a catalytic role in expanding access to affordable credit and strengthening household balance sheets. Targeted policy and regulatory interventions can significantly enhance the ability of formal financial institutions to serve small borrowers and micro-entrepreneurs. Our budget wishlist focuses on four key areas: enabling priority sector recognition for eligible gold loan NBFCs, leveraging digital public infrastructure to democratise credit, rationalising exposure limits and creating a fair and efficient framework for retail debt investors. Enabling financial inclusion through Priority Sector Status (PSL) We strongly advocate for granting PSL status to eligible gold loan NBFCs. Gold loans are mostly availed by small borrowers, often with ticket sizes below Rs 50,000, who rely on them to meet short-term liquidity needs such as medical expenses, education costs, agricultural inputs or working capital for micro-businesses. Currently, while banks enjoy PSL recognition for similar lending, gold loan NBFCs do not. This asymmetry limits the sector’s ability to scale responsibly and offer competitively priced credit. Granting PSL status would create a level playing field, lower the cost of funds and encourage NBFCs to expand outreach in semi-urban and rural markets. Gold-linked Credit Line via UPI UPI has transformed the way individuals and small businesses transact. However, access to credit has not kept pace with this transformation. We propose the introduction of a gold-linked credit line via UPI, enabled for NBFCs. Under this framework, customers could monetise idle gold jewellery and access a revolving, secured credit line directly through UPI-enabled platforms. Such a facility would allow instant, need-based access to funds at interest rates in the range of 12-18%, significantly lower than what is charged by unsecured credit cards. The rationale is simple: gold loans are a trusted and well-understood product, while UPI is deeply embedded in daily financial life. Bringing the two together can dramatically improve access to affordable credit for households and small business owners, reduce dependence on high-cost borrowing, and promote responsible credit usage. In the short term, this could boost consumption and liquidity; over the medium term, it would strengthen household financial resilience and formalise borrowing behaviour. This idea came to me during a recent visit to one of our branches in Kochi, I met an old customer who is also an acquaintance. Our conversation ranged from everyday household needs to how deeply UPI has become part of daily financial life. One simple question stayed with me: why should access to credit remain disconnected from the way people actually transact today? That interaction led me to think about the possibility of a gold-linked credit line via UPI. Gold loans are already a trusted, secured product for households and small businesses. If such credit can be seamlessly linked to UPI, customers could access funds instantly when required, backed by idle gold jewellery, and at interest rates far lower than those charged by credit cards. We believe this can significantly improve access to affordable credit once NBFCs are enabled to integrate with the UPI ecosystem. Rationalising exposure limits for Gold Loan NBFCs We also seek alignment of single counterparty exposure limits for gold loan NBFCs with those applicable to other NBFCs, set at 20% of Tier-1 capital. The current disparity constrains lending capacity despite gold loans being fully secured and historically demonstrating strong asset quality. Rationalising these limits would enable well-capitalised, regulated NBFCs to extend credit more efficiently, without compromising prudential safeguards. Creating a Fair Framework for Retail NCD Investors Retail investors play an important role in diversifying NBFC funding sources. However, current TDS provisions on listed NCDs mandates 10% TDS on interest – this creates avoidable compliance burdens, particularly when NCDs are traded on stock exchanges. Given that listed securities already provide a transparent audit trail of ownership and interest payments, simplifying or rationalising TDS norms would ease friction and improve market participation. Additionally, we recommend allowing a higher interest rate for retail investors, pensioners and senior citizens in public issues of secured NCDs, over and above rates offered to institutional investors. Retail investors often have different risk-return expectations and limited access to alternative fixed-income instruments. Offering appropriate incentives would encourage household participation in capital markets and support long-term savings.(George Alexander Muthoot is MD of Muthoot Finance)
