India’s banking sector is seeing growing pressure on asset quality as unsecured personal loans and credit card dues continue to rise sharply in 2025. The Reserve Bank of India (RBI) has issued multiple warnings about rising risks in unsecured lending, urging banks and NBFCs to strengthen credit assessment and provisioning buffers.
With personal loan growth outpacing overall credit expansion, lenders now face potential stress in consumer portfolios if repayment discipline weakens.
The Credit Boom and Its Risks
Unsecured Loan Surge:
Personal and consumer durable loans have grown over 20% year-on-year, far higher than secured lending.
Credit Card Usage Spike:
Credit card spends crossed record highs, but outstanding balances are also increasing, hinting at repayment strain.
Rising Delinquencies:
Early signs of stress are visible in delinquency ratios, particularly among new-to-credit and low-income borrowers.
Household Debt Increase:
Urban consumption has led to higher leverage among salaried millennials, exposing them to repayment risk amid inflation.
RBI’s Tightening Measures:
The central bank has raised risk weights on unsecured loans and credit cards to curb excessive lending and ensure prudent risk management.
Impact on Banks & NBFCs
While profits remain stable, analysts warn that continued growth in unsecured portfolios could lead to non-performing asset (NPA) pressure if macroeconomic conditions worsen.
“The biggest risk today lies in unsecured retail credit — it’s profitable but increasingly volatile,” said a senior banking analyst.
Banks with large personal loan and credit card books are now tightening underwriting norms, while NBFCs face higher funding costs due to regulatory caution.
What Experts Suggest
Balanced Portfolio Mix: Focus on secured segments like home and auto loans.
Enhanced Credit Analytics: Use AI-based monitoring to detect early repayment stress.
Financial Discipline Awareness: Encourage responsible borrowing and timely repayments among retail customers.
Higher Provisions: Maintain adequate buffers for potential defaults.
Outlook for 2025
Despite risks, India’s retail credit demand remains strong. The RBI expects controlled moderation in unsecured loan growth, helping stabilize asset quality over the medium term.
The key will be how lenders manage risk without stifling credit growth, especially as fintech-led lending continues to expand.
FAQs
1. What are unsecured loans?
Loans not backed by collateral — like personal loans, credit cards, or consumer durable loans.
2. Why are they risky for banks?
Without security, banks face higher loss if borrowers default.
3. What steps has the RBI taken?
RBI increased risk weights for unsecured loans and directed banks to review credit exposures.
4. Are defaults rising in 2025?
Early stress signs are visible, but defaults are still manageable at current levels.
5. Which lenders are most exposed?
Banks and NBFCs with large retail unsecured portfolios face higher risk.
Published on : 3rd November
Published by : SMITA
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