Unsecured loans poses risks to asset quality, RBI data shows
Latest central bank data showed that private banks now account for nearly four-fifths of the fresh retail slippages between September 2024 and March 2025. State-run banks aren't free of the problem either: Together, they have the highest share in Special Mention Account (SMA) category loans – or those overdue by up to 90 days - at 10.5% of unsecured retail loans at the end of March 2025.
'Slippages in unsecured retail loans remain elevated for private sector banks, with this category dominating the overall slippage in retail loan segment,' the Reserve Bank of India (RBI) noted in its financial stability report.
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For the entire banking system, the gross non-performing asset (GNPA) ratio in the unsecured retail loan category stood at 1.8% at the end of March 2025. Private sector banks had the highest share of 52.6% in GNPA of unsecured retail loans, followed by public sector banks at 40.5%.
The
SMA ratio
, an indicator of possible stress build-up in the loan book, has increased, led by public sector banks. In SMA category loans—those overdue between 0 to 90 days—public sector banks held the largest share at 10.5% of unsecured retail loans, followed by private sector banks at 5.2%. For the overall banking system, this stood at 7.4%.
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According to RBI data, growth in bank loans to unsecured retail borrowers slowed to 11.6% between September 2023 and March 2025, compared to 27% growth during the period from September 2021 to September 2023.
Bank loans to NBFCs also moderated to 8.8% during the same period, down from 28.7% growth between September 2021 and September 2023. Even as unsecured retail lending has moderated, it still accounts for 25% of overall retail loans and 8.3% of gross advances.
NBFCs, including housing finance companies (HFCs), and fintech firms account for 84.3% of personal loans below Rs 50,000. RBI data also showed that fintech NBFCs had a significant 51.5% share in personal loans below Rs 50,000, followed by NBFCs including HFCs at 32.8% and private banks at 7.7%.
The data further indicated that nearly 68.3% of borrowers with personal loans below Rs 50,000 had three live loans.
'Around 10% of the borrowers availing a personal loan under Rs 50,000 had an overdue personal loan,' the RBI noted. 'A little over two-thirds of borrowers who have availed personal loans in the last quarter had more than three live loans at the time of origination.'
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