India’s Consumer Loan Growth Bottoms Out, But Recovery Is Gaining Speed

Consumer Loan Growth Bottoms Out, But India’s Recovery Gears Up

Feeling the credit crunch? You’re not alone. India’s once-surging consumer loan growth just hit the brakes — but it might be ready to rev back up. According to a new report by global financial firm Morgan Stanley, unsecured consumer loans, which had been expanding rapidly in recent years, have now bottomed out. Year-on-year growth dropped sharply from 31% in Q1 FY23 to just 8% in Q4 FY25. But here’s the twist: Morgan Stanley expects faster loan growth recovery ahead, backed by moderating credit costs. “Unsecured Consumer Loans: Loan growth appears to have bottomed; we expect faster loan growth recovery and credit cost moderation,” the report noted. This shift comes as financial institutions recalibrate strategies amid stricter regulations and evolving risk perceptions. If you’ve been watching the lending space slow down, now might be the time to buckle up — the curve could be turning.

Loan Growth Slows, But Not For Long

Morgan Stanley’s report pointed to a significant deceleration in unsecured loan disbursements during FY25. The slowdown followed the Reserve Bank of India’s move to increase risk weights on consumer credit, which pushed lenders to act more cautiously. Rising delinquencies, especially in the unsecured space, added to this wariness. Despite the current slump, the report maintained that the market may enter a new phase of measured recovery. Lenders appear ready to grow again — but with sharper underwriting and better credit monitoring. This mix of restraint and optimism suggests a shift from aggressive expansion to a more balanced growth mindset in India’s lending space.

Early-Stage Delinquencies Show Mixed Picture

Delinquency data revealed diverging trends among different lending institutions. Public sector banks recorded a rise in their Portfolio at Risk (PAR 31-90 days) to 2.61% in March 2025, up from 2.45% in March 2023. Non-banking financial companies (NBFCs) also saw their early delinquency ratio climb to 2.19% from 2.01%. Meanwhile, private banks bucked the trend, improving their numbers with PAR dropping to 1.11% from 1.26%. These shifts underscore the varying credit risk dynamics across institutions, and highlight how private banks appear to have tightened controls more effectively. Risk management, clearly, now plays a starring role in the lending narrative.

Cautious Optimism Amid Delinquency Concerns

The report signaled cautious optimism. It stated that while delinquencies have risen in both early and late stages, lenders are likely to prioritise asset quality moving forward. Improved credit cost management and conservative disbursement strategies could steer the unsecured loan segment toward gradual recovery. The sharp moderation in growth has opened a window for financial institutions to reassess risk, refine credit models, and avoid overexposure. With the RBI’s regulatory stance pushing for discipline, the stage appears set for a lending landscape that’s more robust, data-driven, and balanced — but still alert to red flags.

(With Inputs From ANI)

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