Higher gold import duty may boost gold loan demand, says Nirmal Jain

The government’s move to raise import duties on gold may have triggered concerns around jewellery demand and consumer sentiment, but for the gold loan industry, the development could create new opportunities. According to Nirmal Jain, from IIFL Finance the higher duty structure could work positively for lenders focused on gold-backed financing, especially at a time when small businesses are grappling with inflationary pressures and supply chain disruptions.

Speaking to ET Now, Jain explained that an increase in gold prices effectively raises the value of collateral available with borrowers, thereby increasing the amount they can borrow against their jewellery.

“Yes, in a way, it is positive for the growth because the loan to value goes up and the purchasing, basically how much borrowing customers can do, they have a more leeway there and in an environment where many of the MSME businesses will be impacted by supply chain and the inflation, probably they will need more working capital, so this is very handy at this point in time,” said Nirmal Jain.


The comments come amid concerns that higher gold prices and import duties could reduce fresh gold purchases and weaken demand in the jewellery market. However, Jain clarified that the gold loan business largely operates independently of new gold purchases because loans are typically extended against existing household jewellery.
“No, see the gold loan is always against old jewellery not against new jewellery. So, the primary purpose of gold loan is not to encourage speculation in buying gold and that is why these regulatory restrictions are there,” he said.

He further noted that the rise in the underlying value of gold increases borrowing capacity for customers while also giving lenders additional flexibility in structuring loans.

“So, as far as gold loan industry is concerned, the total value that it can lend goes up and how that is utilised is between the borrower and the lender. So, lenders want to be conservative to release entire thing and the borrowers also probably based on their need will have a higher capacity to borrow,” Jain added.

Apart from discussing the impact of gold duties, Jain also addressed the company’s ongoing tax dispute involving a demand of ₹476 crore. He maintained that the matter remains non-material from a business standpoint and expressed confidence in the company’s legal position.

“Yes, absolutely. So, good thing is that assessment has concluded with a demand of 4.76 billion, so we can go and appeal because based on facts and the legal position we are very sure that there is no additional demand required from tax authorities,” he said.

Jain also underlined the company’s compliance track record while referring to the tax proceedings.

“We always paid our taxes properly, always in time and fully without even any tax planning or any tax evasion. So, this is for last six years block assessment and once the assessment is done, then the next step is to go and appeal,” he added.

The comments suggest that while higher gold duties may weigh on consumption trends in the broader jewellery market, lenders operating in the gold loan segment could continue to benefit from rising collateral values and stronger demand for working capital financing among MSMEs.