India’s long festive season — from Onam and Navratri to Diwali and Christmas — triggers a huge spike in consumer spending every year.
But this year, post-festival data is revealing something new:
Banks are becoming more conservative in personal loan approvals, especially for high-risk or over-leveraged borrowers.
The combination of higher EMI burdens, rising credit card usage, and early delinquency trends has made lenders adopt a more cautious stance for unsecured loans.
Here’s a closer look at why banks are tightening norms — and what it means for borrowers in 2025–26
1. Festival Season Spending Pushed Consumer Debt to New Highs
Festival months traditionally see:
Increased credit card purchases
BNPL transactions
Smartphone and electronics EMIs
Travel loans
Personal loans for gifting & holiday expenses
This year, however, consumption was stronger than usual, and banks noticed an unusually sharp jump in unsecured borrowing.
Result:
Borrowers’ repayment capacity is now stretched → Banks are imposing stricter checks.
2. Rise in Early Delinquencies After Festivals
Internal lending data across banks shows:
Higher 0–30 DPD (days past due) trends
Credit card rollover balances increasing
BNPL late fees rising
Personal loan EMI defaults inching up
Early delinquency is the strongest warning sign of future defaults.
Hence banks:
✔ Are approving fewer personal loans
✔ Are offering smaller ticket sizes
✔ Are demanding stronger credit profiles
3. Credit Scores Took a Hit After Heavy Diwali Spending
Post-festival credit bureau data indicates:
Higher credit utilization (40–90%)
More inquiries for short-term loans
Increased EMI obligations
Since credit score impacts risk-based pricing, many borrowers now fall into higher-risk categories due to temporary credit spikes.
Banks are therefore:
Raising interest rates
Lowering pre-approved limits
Rejecting borderline applications
4. RBI’s Advisory on Unsecured Loans Made Banks More Cautious
The Reserve Bank of India has repeatedly warned lenders about:
Fast unsecured credit growth
Aggressive fintech-led lending
Rising urban millennial over-leverage
Need for tighter underwriting
This has made banks more conservative, especially right after the high-spend festive months.
5. Income Volatility Among Young Borrowers Raising Red Flags
A large share of personal loan applicants today include:
Gig workers
Contractual employees
Freelancers
Delivery workers
New salaried staff without long job history
Income instability → higher risk.
Post-festival spending amplifies this risk even more.
So banks now require:
Salary stability
3–6 months of income consistency
Lower FOIR (Fixed Obligations to Income Ratio)
6. Banks Want Strong Loan Buffers Now
Banks are prioritising borrowers who show:
EMI-to-income ratio under 35%
Credit score above 740
Low credit utilisation
Minimal existing unsecured loans
Stable employment history
This shift reflects a more conservative lending cycle.
7. Risk-Based Pricing Has Increased for Many Borrowers
Personal loan interest rates now vary widely:
| Borrower Profile | Typical Personal Loan Interest Rate |
|---|---|
| High Credit Score (760+) | 10.5% – 13% |
| Medium Credit Score (700–759) | 13% – 18% |
| Low Credit Score (<700) | 18% – 28% |
Post-festival over-spending automatically pushes borrowers into costlier loan categories.
What Borrowers Should Do Now
✔ Reduce credit card utilization below 30%
Improves score fast.
✔ Avoid taking multiple unsecured loans
Too many inquiries = higher rejection risk.
✔ Clear small-ticket BNPL dues
Banks now check BNPL repayment behaviour.
✔ Maintain a clean salary account trail
Regular income patterns increase approval chances.
✔ Apply to your existing bank first
Higher chance of approval with better rates.
✔ Build a 2–3 month buffer before applying
Let your festival-spending behaviour stabilise.
Conclusion: Banks Aren’t Stopping Loans — They’re Just Being Smarter
India’s festive economy is booming, but so is unsecured debt.
Banks are now prioritising:
Lower-risk borrowers
Higher credit discipline
Lower FOIR
Strong repayment history
Responsible spending behaviour
Borrowers who manage their credit well will still get fast approvals and low rates, but impulsive festive-season spenders may face stricter checks and higher pricing in the coming quarter.
❓ FAQs
1. Are banks rejecting more personal loan applications this quarter?
Yes, especially for borrowers with high credit utilisation or weak repayment history.
2. Why are banks more conservative after the festive season?
Because unsecured debt rises sharply, increasing the risk of early loan defaults.
3. How can borrowers improve approval chances?
By improving credit score, reducing utilisation, and maintaining stable income records.
4. Does festival shopping affect credit score?
Yes — higher utilisation, BNPL loans, and credit inquiries can temporarily lower your score.
5. Will personal loan interest rates rise?
Risk-based pricing has already increased for medium- and high-risk borrowers.
Published on : 22nd November
Published by : SMITA
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