UBS Sees Strong Growth Ahead for India's Unsecured Credit, Personal Loans to Lead

India is entering a potentially strong phase of unsecured credit growth, with personal loans expected to emerge as the key driver, according to a report by UBS. The investment bank said the outlook is supported by improving asset quality, stable household leverage, ample liquidity in the financial system and a gradual shift among lenders towards taking greater credit risk.

The assessment comes after a three-year adjustment period across several unsecured lending segments, including microfinance, personal loans, credit cards and unsecured business loans. UBS said asset quality has improved significantly across most of these categories, creating conditions for lenders to increase credit availability.

India's unsecured household leverage had increased from around 6 per cent of GDP in FY19 to approximately 10 per cent in FY24. However, the ratio has remained largely stable over the past three years. At the same time, gold-backed lending has expanded considerably, increasing from about 1 per cent of GDP to nearly 5 per cent by FY26.

UBS expects the rapid growth in gold loans to moderate as gold prices stabilise. Since gold loans have served as an important alternative to personal loans in recent years, slower growth in this segment could leave more room for personal lending to regain momentum. Signs of a recovery are already emerging. Citing CRIF data for August 2026, UBS said personal loan growth at NBFCs accelerated to around 30 per cent year-on-year, while banks recorded growth of about 9 per cent. For banks, the pace marked the strongest growth in nearly two years.

The recovery in NBFC personal lending has been particularly visible in mid-sized and larger-ticket loans. Together, these categories account for roughly 75 per cent of the overall NBFC personal loan portfolio. UBS said annual personal loan growth among NBFCs increased from about 16 per cent in March 2025 to 30 per cent in August 2026.

Improving asset quality is another factor strengthening the outlook. UBS said early-stage delinquency indicators across unsecured lending products have shown some of their strongest readings in recent quarters, although certain pockets of stress remain, particularly among smaller-ticket business loans issued by NBFCs.

In the NBFC personal loan segment, the share of loans that were between one and 30 days overdue declined to around 1.8 per cent in August 2026 from 3.5 per cent in June 2024. The report said personal loan asset quality across different loan sizes at banks and NBFCs is now at its strongest level in several quarters.

UBS believes the combination of stronger asset quality, faster personal loan growth and favourable liquidity conditions could support the earnings outlook for some lenders. The investment bank expects the unsecured lending cycle to gain momentum, with personal loans likely to lead the next stage of growth. The developments also highlight how lenders are gradually moving away from the cautious approach adopted during the previous credit cycle. While the improvement in asset quality provides room for faster lending, continued monitoring of borrower stress and underwriting standards will remain important as unsecured credit expands.

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