Slippages in unsecured retail loans go up to 53.1 % of total retail loans for banks: FSR

PVBs accounted for greater share in fresh unsecured loan defaults according to banking data
| Photo Credit:
phakphum patjangkata

Banking institutions must intensify monitoring of payment defaults in unsecured retail lending. Recent data reveals these loans represented 53.1% of total retail payment failures across Scheduled Commercial Banks (SCBs) as of September 2025, per the Financial Stability Report (FSR) findings.

This reflects an increase from 51.9% recorded in September 2024. While overall retail asset quality remains stable—with gross non-performing assets at 1.8% compared to standard retail advances at 1.1%—the escalation in unsecured loan defaults raises concerns.

Analysis shows private sector banks (PVBs) experienced above-average default rates in unsecured lending, coupled with reduced recovery rates and increased loan write-offs.

By September 2025, public sector banks demonstrated the strongest performance in unsecured retail with a 1.4% default ratio, outperforming PVBs (4.7%), foreign banks (6.8%), and small finance banks (10.4%).

The sector witnessed PVBs implementing extensive write-offs as defaults surged while recovery efforts underperformed.

“Unsecured lending—particularly small-ticket loans to multi-borrowers—expanded rapidly before RBI’s November 2023 risk-weight adjustments. Growth pressures temporarily diluted underwriting standards. Default rates should stabilize as lending practices tighten and subprime exposure decreases,” explained a financial sector analyst.

Credit Underwriting

The FSR notes signs of recovery in bank lending to NBFCs (8.5% YoY) and unsecured retail segments (6.2% YoY) as of September 2025—both categories affected by November 2023 regulatory changes.

Across financial institutions, gold loan portfolios expanded significantly, constituting 5.8% of combined SCB and NBFC advances. While NBFC gold loans to subprime borrowers decreased marginally to 56.8%, they remain substantial.

Both banks and NBFCs maintained higher credit standards in unsecured business lending, with prime borrowers representing 69.1% and 68.6% of portfolios respectively.

Published on January 1, 2026