Regulation or rate cut? Pricing India's gold-loan directions

Kanakachandran C R; Girish M C

Regulation or rate cut? Pricing India's gold-loan directions

Author(s)	Dr. Kanakachandran C R, Prof. Dr. Girish M C
Country	India
Abstract	The Reserve Bank of India issued draft directions regarding lending against gold collateral on 9 April 2025. It issued softened, finalised directions in the opposite direction on 6 June 2025, a decision made on two separate monetary policy announcement days, both followed by rate cuts. Such an event study does not address how much of gold lenders’ price movement is purely regulatory rather than monetary policy driven. This paper separates regulatory from monetary effects using a control group: listed non-bank lenders that received the same monetary policy shock but had neither substantial gold collateral loan books, and compares abnormal return differences between groups. The prior announcements on the draft regulations, which appeared highly restrictive to market investors, resulted in a 4.7 percentage point decline in three-day stock performance compared to the control group-even after consideration of gold price in a two-factor model; three different estimation windows as well as exclusion of the biggest firm size, are confirmed, not sensitive to parameter choice and to a 2000 pseudo-event dates randomisation test. However, the later announcements show strikingly different results: although gold lenders’ stock performed well, with gross abnormal returns increasing by 5.8%, the control group also rose by 4.2% on those days,, so that the 1.6% difference is not statistically distinguishable. The repo cut made earlier that morning explains most of this phenomenon, while the residual rallies seem anticipated given the pre-event tests; this paper further delineates the effects by decomposing event days and suggests that monetary policy has its impact on the day, while regulatory policy has its impact on the day after. No particular effect can be detected for the event in September 2025. Overall, cumulative losses of 3.1% for the control group of loan-book owners from April to June suggest that any prior warning signal is not easily reversed.
Keywords	Gold loans; macroprudential regulation; loan-to-value; event study; non-banking financial companies; monetary policy announcements; India
Field	Sociology > Banking / Finance
Published In	Volume 17, Issue 3, July-September 2026
Published On	2026-09-09

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Regulation or rate cut? Pricing India's gold-loan directions

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