Unsecured Loan Growth Returns in Q3FY26 After 6-Quarter Slowdown: What Changed for Banks

After a long cooldown, banks are reviving unsecured retail lending in Q3FY26, backed by firmer loan growth, steadier stress indicators, and tighter borrower selection.

Unsecured retail lending, mainly personal loans and credit cards, is again seeing traction in the December 2025 quarter (Q3FY26). The last few quarters saw lenders slow down, reprice, and tighten approvals. 

Now, quarterly business updates and earnings commentary show loan growth improving across banks, helped by festive demand and a broader pickup in system credit. 

Reuters reported on January 05, 2026 that system credit growth improved to 11.4% YoY, from a low of about 9% in May 2025. The comeback is real, but it is cautious. Banks are leaning towards better-rated borrowers, controlled ticket sizes, and sharper monitoring.

How The Q3 Revival Is Playing Out On The Ground?

The December 2025 quarter is showing a broader improvement in loan momentum, even as deposit growth remains a constraint for many lenders. Reuters said on January 12, 2026 that bank earnings in Q3 are getting support from improving loan growth and stable asset quality, while deposit pressure may cap the upside. 

Large lenders are also reporting better operating trends. Reuters reported on January 17, 2026 that HDFC Bank’s Q3 profit rose 11.5% YoY to ₹186.53 bn, with margin improvement supporting earnings. 

For lenders with meaningful consumer exposure, the narrative is similar: growth is back, provisions are easing in parts of the book, and underwriting is sharper than it was during the high-growth phase.

Non-bank lenders linked to banks are also seeing demand. HDB Financial posted a 36% profit rise for the quarter ended December 31, 2025, with gross stage 3 loans stable at 2.81%. This matters because it reflects improving stability in portfolios that include unsecured segments.

What Happened Earlier: The 6–7 Quarter Cooling Phase And The Data Trail?

Unsecured credit lost pace through 2024 and 2025 as lenders turned cautious. 

The market also changed shape during this phase. As unsecured growth cooled, lenders pushed higher-ticket and better-rated borrowers. Mint reported on November 25, 2025 that personal loans of ₹10 lakh+ accounted for 37.4% of origination value in Q2FY26, up from 30.2% in Q1FY26, with PSU banks driving much of the expansion. 

Public sector banks also gained share in new unsecured personal loan originations. Economic Times reported on November 30, 2025 (citing CRIF High Mark) that PSU banks’ share in unsecured personal loan origination rose to 36%in the September quarter, from 27% in the June quarter, driven by focus on larger ticket sizes. 

Before moving to stakeholder views, here is the shift captured in a simple before-after view.
 

This is why Q3 reads like an inflection: the slump was visible in hard data, and the recovery is now showing up in both updates and earnings.

What Stakeholders Are Saying?

Brokerages are clearly flagging better operating conditions. Reuters reported on January 12, 2026 that analysts expect stronger earnings with improving loan growth, and ICICI Securities’ Vishal Narnolia pointed to sequential uptick in NII driven by better loan growth. 

Emkay, quoted by Reuters on January 05, 2026, also noted system credit growth improving and pointed to secured gold loans and vehicle financing as key retail engines for now. 

On risk signals, LoansJagat’s explainer dated October 21, 2025 flagged retail stress indicators such as 53.10% share in total retail defaults and private banks’ 76.00% share in that dataset, while PSBs were at 15.90%. 

Conclusion

Unsecured loan growth is returning in Q3FY26, but it is coming back with tighter underwriting and a clear tilt towards stronger borrowers. The next checkpoint is whether stress stays contained as volumes rise into Q4FY26.