RBI Flags Rising Risks in Unsecured Retail Lending, Private Banks Lead Slippages

The Reserve Bank of India (RBI), in its latest Financial Stability Report released on Wednesday, cautioned about elevated risks in unsecured retail lending. 

The central bank highlighted the possibility of fresh slippages and higher write-offs, particularly among private sector banks. Unsecured retail loans emerged as a key concern, accounting for 53% of total retail loan slippages during the review period.

Private Banks Dominate Unsecured Loan Stress

According to the RBI, private sector banks contributed as much as 76% of total slippages in unsecured retail loans, sharply higher than the 16% share of state-run banks. 

This divergence underscores the greater exposure of private lenders to unsecured products such as personal loans and credit cards. Write-offs as a proportion of gross NPAs for private banks stood at a steep 229.7%, reflecting aggressive balance sheet clean-ups.

Rising NPAs in Unsecured Retail Loans

Asset quality pressures were also visible in headline numbers. Gross non-performing assets in the unsecured retail segment increased to 107 basis points at the end of September 2025, up from 100 basis points a year earlier. The RBI noted that this rise points to lingering vulnerabilities, even as overall credit growth remains steady.

Shift Toward Safer Borrowers

At the same time, banks appear to be recalibrating their lending strategies. In gold loans, nearly 69% of disbursements were made to prime-and-above borrowers, with a similar share going to highly rated customers. In consumer loans, private sector banks disbursed over 70% of credit to prime-and-above borrowers, while public sector banks improved their ratio to 54% by September 2025.

MSME and Microfinance Trends

In the MSME segment, super-prime borrowers accounted for 48.7% of outstanding loans, followed by prime borrowers at 28.9% and subprime borrowers at 22.4%. Meanwhile, microfinance credit contracted for the sixth straight quarter, declining 9.3% year-on-year. The number of active microfinance borrowers fell by 78 lakh, even as stressed asset ratios improved for the third consecutive quarter.

Also Read: Credit Growth Nears 12% While Deposit Growth Slows!

Conclusion

The RBI’s assessment signals a cautious phase for unsecured retail lending, especially for private banks with higher exposure. While asset quality pressures persist, the gradual shift toward safer borrowers and improving risk profiles suggests that lenders are responding proactively to emerging credit risks.

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