Banks cautiously revive unsecured loans on rate cuts

India’s banks are cautiously reopening the tap on unsecured lending, as policy rate cuts drive margin pressure and risks stay largely under control.

- Anshika Kayastha & Subhana Shaikh

Banks focus on premium borrowers to limit risks. AFP

The shift follows a period of restrained growth after a regulatory clampdown in November 2023 forced lenders to rein in fast-growing personal loans and credit cards. The renewed push to grow these portfolios, however, is selective, as lenders focus on premium, low-risk customers.

The Reserve Bank of India (RBI) has cut policy rates by a cumulative 125 basis points (bps) since February 2025, including 25 bps in December. Lending rates typically reset faster than deposit costs, putting pressure on bank margins. Unsecured loans, which are not backed by collateral and command higher yields, are increasingly being positioned as a buffer.