After a period of aggressive growth, some Indian NBFCs are now stepping back from the unsecured loan segment — a space once seen as a profit magnet.
From personal loans to consumer durables financing, non-banking financial companies are tightening norms as defaults rise and regulatory scrutiny deepens.
What’s behind this sudden caution? A mix of macroeconomic stress, regulatory signals, and risk management.
Rising Defaults & Delinquencies
The surge in unsecured lending over the past two years was fueled by post-pandemic consumer demand and easy digital credit.
However, this rapid expansion has started showing cracks:
Delinquencies in the personal loan segment have ticked up, especially among young urban borrowers.
Some NBFCs report collection efficiency dropping in smaller-ticket loans.
With household leverage increasing, repayment stress is becoming evident in Tier-2 and Tier-3 cities.
“The credit cycle is turning. Borrowers who took multiple personal loans online are now struggling to repay,” said a senior credit risk analyst.
RBI’s Tightening Grip
The Reserve Bank of India (RBI) has been signaling caution for months.
In 2024, it introduced stricter capital provisioning and risk-weight guidelines for unsecured retail loans.
NBFCs, which typically operate on thinner capital buffers than banks, are finding these new rules challenging.
The regulator’s message is clear: grow sustainably, not recklessly.
This has led several NBFCs to slow disbursals, especially in unsecured consumer and personal loan portfolios.
Cost of Funds Rising
Another pressure point is the cost of borrowing.
With interest rates still elevated and liquidity tightening, NBFCs are finding it expensive to raise funds.
Higher funding costs make low-yield, high-risk unsecured loans less attractive.
In contrast, secured lending (such as gold, vehicle, or home loans) offers safer margins and lower default probability.
Shift Toward Secured & Co-Lending Models
To manage risk, many NBFCs are pivoting toward secured loans and co-lending partnerships with banks.
Under co-lending, banks provide part of the loan capital, reducing the NBFC’s exposure and improving balance sheet quality.
This hybrid model allows NBFCs to continue lending — but with shared risk and better capital efficiency.
The Data Behind The Decision
Recent reports show:
Unsecured personal loans now account for over 25% of retail credit portfolios.
Default rates have risen 20–30 basis points year-on-year.
Smaller NBFCs face tighter liquidity as investors demand safer balance sheets.
This shift signals a broader rebalancing of the credit ecosystem — from volume to value-driven growth.
Expert Insight
“NBFCs aren’t exiting the unsecured space entirely — they’re simply recalibrating risk. The goal is long-term sustainability over short-term profits,” said a financial sector economist.
What It Means For Borrowers
For consumers, this trend may lead to:
Stricter eligibility checks for personal and small-ticket loans.
Higher interest rates on unsecured credit.
Reduced offers from smaller NBFCs and fintechs.
Borrowers will need stronger credit profiles and repayment discipline to access affordable credit going forward.
❓ FAQ
Q1: What are unsecured loans?
Unsecured loans are loans given without collateral — such as personal, credit card, or consumer durable loans.
Q2: Why are NBFCs reducing exposure to these loans?
Because of rising defaults, tighter RBI norms, and higher funding costs, which increase portfolio risk.
Q3: Are all NBFCs cutting back?
Not all — larger, diversified NBFCs continue lending but with stricter credit filters.
Q4: Will this affect loan availability for customers?
Yes, especially for low-credit-score borrowers or those seeking instant digital loans.
Q5: What’s the long-term outlook?
A healthier, more cautious lending environment with better credit discipline and improved balance sheet strength.
Conclusion
India’s NBFCs are entering a new phase of cautious growth.
After years of expansion in the unsecured segment, the focus is now shifting to risk-adjusted returns and portfolio stability.
This recalibration isn’t a retreat — it’s a reminder that in finance, discipline is the best form of defense.
Published on : 28th October
Published by : SMITA
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