Public Sector Banks May Cross ₹1 Lakh Crore in Digital Footprint Loans by FY26

India’s banking landscape is undergoing a massive digital shift, and public sector banks (PSBs) are at the heart of this transformation. As the country embraces financial technology at record speed, PSBs are leveraging data analytics, AI-driven credit assessment tools, and improved digital outreach to enhance credit access. 

Industry estimates suggest that digital footprint-based lending by PSBs could touch nearly ₹1 lakh crore by FY26, a milestone signalling the sector’s evolution toward a technology-first credit ecosystem.

The Rise of Digital Footprint Lending in India

Digital footprint lending refers to assessing a borrower’s creditworthiness through their digital activities, such as online transactions, payment history, utility bill payments, and e-commerce behaviour. This model moves beyond traditional metrics like income proofs and collateral, offering lenders a holistic view of borrowers’ financial habits.

Public sector banks, traditionally slower to adopt such innovations, have accelerated their digital initiatives post-pandemic. The government’s Digital India push, combined with the Reserve Bank of India’s (RBI) regulatory support for fintech collaboration, has enabled PSBs to digitise end-to-end lending workflows — from application to disbursement.

Industry analysts note that PSBs’ digital lending portfolios have grown by over 25% year-on-year since FY22. This momentum is expected to continue, driven by increased demand for small-ticket consumer and MSME loans.

Key Drivers of Growth: Data, AI, and Financial Inclusion

The growth of digital footprint loans among PSBs can be attributed to three major factors, data integration, artificial intelligence, and financial inclusion goals.

First, PSBs now have access to vast digital datasets through platforms like Account Aggregators (AA) and Public Credit Registry (PCR). These systems consolidate borrowers’ financial information, allowing banks to make faster, data-driven credit decisions.

Second, AI and machine learning models enable banks to evaluate non-traditional borrowers — such as gig workers, small entrepreneurs, and first-time credit users, who often lack formal documentation. This widens the credit base without compromising asset quality.

Third, digital lending supports the government’s broader goal of promoting inclusive growth. With UPI transactions crossing ₹20 lakh crore monthly and over 55 crore Indians now using smartphones, PSBs are tapping into a vast pool of digital-savvy yet underserved borrowers.

Projected Digital Lending Growth (FY23–FY26)

To understand the scale of expansion, the following table highlights the projected growth trajectory of digital footprint loans by PSBs:
 

These projections demonstrate that digital lending by PSBs could more than double within three years. The initial growth surge stems from rapid digital onboarding and government-backed lending schemes, while the steady growth thereafter reflects maturing digital operations and improved borrower data analytics.

Challenges in the Digital Lending Journey

Despite the optimistic outlook, PSBs face several challenges in scaling their digital footprint lending portfolios. Data privacy and cybersecurity remain major concerns, especially given the sensitive nature of financial data shared across platforms.

Moreover, PSBs must continuously invest in digital literacy programmes and infrastructure upgrades to ensure equitable access across rural and semi-urban regions. There’s also the issue of algorithmic bias, AI-based credit scoring models can inadvertently exclude certain borrower profiles if not properly calibrated.

Another critical challenge lies in ensuring compliance and transparency. The RBI’s Digital Lending Guidelines mandate that all digital loans must be disbursed and serviced directly between the borrower and the bank, eliminating intermediary risks. Adhering to these norms while maintaining operational agility will be key to sustainable growth.

Impact on Borrowers and Financial Ecosystem

Digital footprint-based loans are already transforming India’s financial ecosystem by reducing turnaround times and improving customer experience. For instance, PSBs now process certain small-ticket personal loans in under 10 minutes, compared to several days earlier.

The impact extends to MSMEs, where digital lending bridges the credit gap for businesses lacking traditional collateral. As digital assessment models evolve, credit disbursal could become more personalised, efficient, and inclusive — fostering entrepreneurship and boosting domestic consumption.

The Road Ahead for PSBs

The journey towards ₹1 lakh crore in digital footprint loans by FY26 reflects PSBs’ growing confidence in technology-driven lending. By adopting AI, integrating financial data systems, and prioritising inclusion, PSBs are reshaping the country’s credit landscape.

However, the true success of this digital shift will depend on how well banks manage risks, protect data, and sustain borrower trust. If executed effectively, this digital revolution could position India’s public sector banks not just as lenders, but as pioneers in building a data-led, inclusive financial future.