India’s Credit Curve Is Bending, Are Lenders Ready?
The latest RBI data (May 2025) reveals a clear shift in India’s borrowing behaviour. While housing loans continue to lead at 50.1% of total retail credit, what stands out is the sharp rise in unsecured personal loans, now comprising 25.3%. Credit card dues alone total ₹2.9 lakh crore. The data is a clear sign that India’s middle class is growing more comfortable with short-term, lifestyle-driven borrowing.
Behind the numbers lies a growing concern. Let us start with that first.
In its June 30 Financial Stability Report, the RBI flagged rising stress in retail credit, particularly in unsecured categories like personal loans, credit cards, and microfinance. While gross NPAs remain at historic lows (around 2.3%), household debt has crept up to nearly 42% of GDP. That’s a significant shift from two years ago, when India’s consumer borrowing was still relatively conservative. What we’re seeing now is not just higher borrowing, but deeper dependence across income tiers.
This concern is backed by the latest data from FACE (Fintech Association for Consumer Empowerment), which shows that fintech-originated personal loans recorded a six-quarter delinquency high of 3.6% as of March 2025. These are typically smaller-ticket loans, often given to new-to-credit users with limited repayment history. As defaults rise in this segment, investors and lenders are being forced to recalibrate risk.
Despite these warning signs, the momentum hasn’t slowed. In April 2025, unsecured consumer credit continued to grow at around 10 to 11% year-on-year, outpacing many traditional lending categories. According to a recent study by BCG and QED Investors, only 65% of India’s personal bank credit is secured, compared to over 90% in the US. This speaks to a broader shift in how Indian consumers engage with credit. It's not just about buying homes anymore. It’s about enabling aspirations, and doing so at a faster pace.
A senior RBI official, speaking on background in late June, noted that risks remain contained for now, but borrower quality in the lower-rated segments is being monitored closely. Fintech founders have echoed this dual reality. One founder said, "Unsecured credit will continue to rise, but we must focus on borrower education and smarter underwriting." And with India’s GDP growing at 7.4% in Q4 FY25, the hunger for credit isn’t likely to fade soon.
So where does this leave investors and lending startups? The biggest opportunities lie not in the crowded spaces, but in the underleveraged ones. Education loans, loans against securities, and SME working capital products remain relatively untapped. At the same time, credit quality will become a differentiator. Founders who build robust early-warning systems, dynamic pricing models, and compliance-first processes will have a clear edge.
The writing on the wall couldn’t be any clearer. As the Indian borrower evolves, so must the lenders who serve them.
(The writer is a seasoned Banker and Mortgage Specialist working for India’s largest loan distributor company and covers financial policy, digital services, and public infrastructure in India.)
