Banks renew push to unsecured loans

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

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

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 for margins.

India Ratings & Research said on 14 January that while deposit repricing is ongoing following the rate cuts, any meaningful improvement in net interest margins (NIMs) is likely to be delayed until the end of fiscal year 2026 (FY26) or early FY27, aided by liquidity-easing measures.

NIM is a lender's core income on every ₹100 raised from the market or via deposits, and given out to borrowers.

Banks' NIM moderated to 3.1% in 2024-25 from 3.3% in the previous year, as per the RBI's Report on Trend and Progress of Banking, dated 29 December, which showed that median NIMS remained highest for private banks, followed by foreign banks, while PSU banks exhibited relatively uniform margins with limited cross-bank variation.