Are Indian Banks Underestimating the Unsecured Loan Problem?

Headline bank asset quality looks steady, but fresh data on personal loans, credit cards and retail write-offs shows unsecured stress is easing slower than expected.

India’s banks are still reporting healthy overall bad-loan ratios, but the stress inside unsecured retail lending is harder to ignore. Personal loan growth and credit card debt growth have slowed sharply after tighter lending norms. 

At the same time, banks are turning selective, preferring high-credit-score borrowers and secured products such as gold loans. The concern is simple: the system-level picture looks calm, but the unsecured segment, especially small-ticket retail credit, is showing a more fragile trend than the headline numbers suggest.

Unsecured Loan Stress Is No Longer A Side Story

On 28 February 2025, Reuters reported that personal loan growth slowed to 9.2% in January from 20.8% a year earlier, while outstanding credit card debt growth dropped to 13% from 31.3%. On 27 March 2025, Reuters said the slowdown continued, with personal loan growth at 8.4% in February versus 19.5% a year earlier, and credit card debt growth at 11.2% versus 31%. That is a steep reset, not a small cooling.
 

That slowdown matters because it reflects both policy tightening and rising lender caution. Reuters also reported on 30 June 2025 that the gross bad loan ratio of 46 banks stood at 2.3% in March 2025, but delinquencies were rising in retail segments such as credit cards and microfinance.

How The Story Has Developed?

This pressure had been building for months. Reuters reported on 29 October 2024 that 5 of the 8 largest private banks posted higher bad loans in the September quarter, driven partly by over-leveraged retail borrowers. On 10 February 2025, Reuters said private banks expected higher defaults in small loans until mid-2025. 

Then on 16 March 2026, The Indian Express reported that retail loans became the top write-off category for the first time at ₹45,404 crore in FY25, out of total bank write-offs of ₹1.72 lakh crore. LoansJagat, in its 4 January 2026 analysis, also described unsecured credit as India’s most default-prone loan segment.
 

There is another shift. The Economic Times reported on 31 March 2026 that the share of new-to-credit borrowers in fresh loans dropped to 16% from 22% two years earlier, while gold loans accounted for 36% of retail lending by volume and 39% by value. That points to a clear risk-off stance by lenders.

What Stakeholders Are Saying

Axis Bank’s Arjun Chowdhry said stress was visible across unsecured segments because of borrower over-leveraging. 

Kotak Mahindra Bank’s Ashok Vaswani said credit card delinquencies had plateaued. TransUnion CIBIL’s Bhavesh Jain, quoted by ET, said lenders are now leaning towards prime borrowers and known customers.

Conclusion

Banks are not ignoring unsecured-loan stress. But the latest numbers suggest they may still be underplaying how long the clean-up in retail credit could take.

Headline bank asset quality looks steady, but fresh data on personal loans, credit cards and retail write-offs shows unsecured stress is easing slower than expected.