India’s retail credit landscape is changing fast. With regulatory pressure and rising risk concerns, banks and NBFCs are tightening their norms for unsecured lending — such as personal loans and credit cards. This is nudging borrowers toward secured or asset-backed loans, including gold loans, vehicle loans, and loan-against-property products.
Why Unsecured Lending is Tightening
RBI Guidance & Oversight: The Reserve Bank of India has been closely monitoring personal loan and credit card portfolios to prevent a build-up of systemic risk.
Rising Delinquencies: As household leverage rises, lenders are becoming cautious about non-performing assets (NPAs) in the unsecured segment.
Higher Risk Weights: Regulators have increased the risk weights on unsecured retail loans, making them more capital-intensive for banks.
This environment makes unsecured loans less attractive for lenders and sometimes costlier for borrowers.
Shift Toward Secured / Asset-Backed Loans
In response, borrowers — especially small businesses and middle-income households — are increasingly turning to:
Gold Loans: Quick processing with physical gold as collateral.
Loan Against Property (LAP): Higher ticket sizes for personal/business needs secured against real estate.
Vehicle Loans: Easier access and lower interest rates compared to personal loans.
Secured Business Loans: Using machinery, stock, or invoices as collateral.
These loans often carry lower interest rates and better terms, since the lender holds a tangible asset as security.
Impact on Borrowers
Pros: Lower interest rates, higher approval chances, and larger loan amounts.
Cons: Risk of losing the pledged asset in case of default.
Tip: Borrowers should evaluate repayment capacity carefully and choose the right secured product to avoid distress.
Outlook for 2025–26
As the RBI continues its risk-based oversight, secured lending products are likely to dominate retail credit growth. Fintech lenders and banks may develop more hybrid products blending speed, digital processing, and collateral-based risk management.
Frequently Asked Questions (FAQ)
1. Why are banks tightening unsecured lending?
Due to regulatory oversight, higher risk weights, and rising concerns over defaults in personal loans and credit cards.
2. What are examples of unsecured loans?
Personal loans, credit cards, consumer durable loans, and other products that do not require collateral.
3. What are secured or asset-backed loans?
Loans backed by an asset — such as gold, property, vehicles, or investments — which the lender can claim in case of default.
4. Why are borrowers shifting to secured loans?
Secured loans typically have lower interest rates, higher approval chances, and flexible repayment terms compared to unsecured loans.
5. What should borrowers keep in mind when opting for secured loans?
They must ensure they can repay on time to avoid losing the pledged asset, and compare terms across lenders for the best deal.
Published on : 15th September
Published by : SMITA
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