Personal loans set to drive unsecured credit growth in India

India's personal loan market is entering a new phase of expansion as banks and non-banking financial companies (NBFCs) compete to increase unsecured lending, according to a UBS assessment of credit trends in the country.

Personal loans are expected to emerge as the largest growth driver within the unsecured credit segment as the economy advances, the analysis indicates. The shift reflects changing dynamics in India's lending landscape, where traditional banking institutions are now sharing the credit distribution space with NBFCs, broadening access to personal credit products across consumer segments.

Systemic liquidity conditions in the Indian financial system provide substantial capacity for increased lending activity. The abundance of available funds among lenders could facilitate accelerated disbursal of personal loans, potentially making credit more readily accessible to qualifying borrowers.

However, the trajectory of interest rates on personal loans will depend on multiple variables beyond liquidity conditions alone, including regulatory policy, inflation trends, and competitive pressures in the lending market. Industry observers suggest that while lending volumes may increase, pricing dynamics will remain influenced by macroeconomic factors and individual lender risk assessments rather than liquidity availability alone.