Banks want to revive an old ally as margins shrink and asset quality holds

Subscribe to enjoy similar stories. MUMBAI: India’s banks are cautiously reopening the tap on unsecured lending, driven by margin pressure from policy rate cuts and as risks look largely under control. The shift follows a period of restrained growth following a regulatory clampdown in November 2023, when tighter rules forced lenders to rein in fast-growing personal loans and credit cards.

The push to grow these portfolios this time, 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 2025. Lending rates typically reset faster than deposit costs, putting pressure on bank margins.

Unsecured loans, which command higher yields, are increasingly being positioned as a buffer. 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 FY26 or early FY27, aided by liquidity-easing measures. Against this backdrop, several private and public-sector banks said they now plan to step up growth in these portfolios “The overall growth is slightly weaker and personal loan is one segment which also gives them a kicker on the yield side.

There are many critical products on that side, and banks actually make quite a bit of risk-adjusted profit compared to a normal loan. So, this remains a fairly attractive product," said Prakash Agarwal, partner - Geofin Capital, adding that the higher yielding nature of unsecured loans is also likely why banks are looking to grow these segments. The net interest margin (NIM) for banks has been