Banks in India are recalibrating unsecured lending strategies in FY26 as margin pressure intensifies across retail portfolios. Slower credit growth, rising funding costs, and regulatory caution are forcing lenders to rethink risk, pricing, and customer targeting in unsecured segments.
India’s unsecured lending strategies in FY26 are undergoing a visible shift as banks respond to tightening net interest margins and evolving credit risks. The change reflects both regulatory signals and internal balance sheet priorities.
Margin Pressure Forces Strategic Reset in Retail Lending
Indian banks entered FY26 with visible pressure on net interest margins due to higher cost of funds and competitive pricing in retail loans. Unsecured lending, which typically delivers higher yields, has come under scrutiny as risk costs begin to rise.
Over the past two years, personal loans and credit card portfolios expanded rapidly, driven by strong consumption demand. However, recent data suggests that growth is moderating while delinquencies in certain borrower segments are inching up.
This combination is forcing banks to reassess the balance between growth and profitability. Instead of aggressive expansion, lenders are now focusing on improving portfolio quality and optimising returns.
RBI Signals and Regulatory Oversight Tighten Risk Appetite
Regulatory guidance has played a key role in shaping unsecured lending strategies in FY26. The Reserve Bank of India has raised concerns around the rapid growth of unsecured credit, particularly in personal loans and credit cards.
In recent policy actions, higher risk weights were imposed on unsecured retail exposures, effectively increasing capital requirements for banks. This move has made such lending more expensive from a capital allocation perspective.
As a result, banks are becoming more selective in extending unsecured loans. Approval filters are tightening, especially for new-to-credit customers and lower-income segments where default risks are higher.
Shift Toward Quality Over Volume in Loan Portfolios
Banks are now prioritising quality over volume in unsecured lending portfolios. Instead of targeting mass acquisition, lenders are focusing on customers with stable income profiles and stronger repayment histories.
This shift is visible in multiple ways:
- Reduced pre-approved loan offers for high-risk segments
- Increased reliance on internal credit scoring models
- Greater use of bureau data and transaction history
- Focus on existing customers rather than new acquisitions
The emphasis is on improving risk-adjusted returns rather than chasing topline loan growth. This marks a departure from the earlier phase where fintech partnerships drove rapid expansion in unsecured credit.
Pricing Adjustments and Product Innovation Emerge
Another key response to margin pressure is pricing recalibration. Banks are adjusting interest rates and fee structures to reflect higher funding costs and risk premiums.
In addition, product innovation is gaining traction. Lenders are introducing hybrid products that combine features of secured and unsecured loans. For example, small-ticket loans backed by limited collateral or salary-linked lending products are being explored.
Credit card issuers are also revisiting reward structures and fee models to improve profitability. This includes reducing aggressive cashback offers and focusing on value-added services that encourage higher spending among existing users.
Impact on Consumers and Credit Availability
For consumers, especially in Tier-2 and Tier-3 markets, these changes may translate into tighter access to unsecured credit. First-time borrowers could face stricter eligibility criteria and higher interest rates.
However, for creditworthy customers, access is likely to remain stable. Banks are not exiting the unsecured segment but are becoming more disciplined in how they operate within it.
The recalibration could also reduce the risk of over-leveraging among households. By tightening lending standards, banks are indirectly promoting more sustainable borrowing behaviour.
Broader Implications for India’s Credit Cycle
The shift in unsecured lending strategies reflects a maturing credit cycle in India. After a phase of rapid expansion, the focus is now moving toward stability and risk management.
This transition is important for long-term financial system health. Excessive growth in unsecured credit can create systemic vulnerabilities if not managed properly. By acting early, banks and regulators are aiming to prevent potential stress in the system.
At the same time, the demand for retail credit remains strong. The challenge for lenders will be to balance growth opportunities with prudent risk practices in an evolving economic environment.
Takeaways
• Banks are tightening unsecured lending due to margin pressure and rising risk costs
• Regulatory actions by RBI are increasing capital requirements for such loans
• Lenders are shifting focus from volume growth to portfolio quality
• Consumers may face stricter eligibility and pricing in unsecured credit products
FAQs
1. Why are banks changing unsecured lending strategies in FY26?
Banks are responding to margin pressure, rising cost of funds, and regulatory measures that increase capital requirements for unsecured loans.
2. What role has the RBI played in this shift?
The RBI has increased risk weights on unsecured lending, making such loans more capital-intensive and prompting banks to reassess their strategies.
3. Will it become harder to get personal loans?
For high-risk or new-to-credit borrowers, approval may become more difficult. However, creditworthy customers should continue to have access.
4. How does this impact the overall economy?
A more cautious lending approach can improve financial stability while ensuring sustainable credit growth over the long term.
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