Non-bank lenders rush to fill vacuum in unsecured loans

As banks grow more cautious on unsecured loans on the back of increased regulatory oversight, non-bank financiers may be rushing in to fill the gap, pushing more personal loans.

- Abirami Sekar

Although non-banking financial companies (NBFCs) cater to slightly different customer categories, such as those with weaker credit scores, self-employed people and those without salary income, data from a credit bureau showed they have gained market share from banks in this segment.

A personal loan is unsecured, meaning borrowers don't need to provide any collateral, and is categorized as a consumption loan. After the central bank tightened lending norms for higher-risk categories in 2023, banks decided to go slow on advancing such loans.

The aggregate market share of outstanding personal loans held by banks—both private and public sector—fell 260 basis points (bps) to 70% in FY25 from 72.6% in FY24, whereas the market share of NBFCs increased by 160 bps to 23.5% in FY25 from 21.9% in FY24, according to data from credit bureau Crif High Mark. The remaining market share was held by other financial institutions including cooperative banks and small finance banks.