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The Riskiest Loan: This Type Of Credit Has The Highest Default Rate In India
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Young borrowers, particularly those under 25, are the most likely to default, with higher stress levels recorded in tier-2 cities and rural regions
Young borrowers and fintech firms drive growth and risk in unsecured lending.
Loans that do not require any collateral, mainly personal loans and credit cards, now account for the highest share of repayment defaults in the banking system, the Reserve Bank of India (RBI) has warned in its latest Financial Stability Report.
According to the apex bank, unsecured retail loans now make up 53.1% of all retail loan defaults across scheduled commercial banks. The pressure is significantly higher on private lenders compared to state-run banks. RBI data shows that as much as 76% of total loan defaults at private banks come from unsecured loans, while the comparable figure for public sector banks is just 15.9%.
Overall, the non-performing asset (NPA) ratio for unsecured loans across banks is about 1.8%.
Unsecured loans are popular because they can be availed easily and the funds can be used for any purpose. However, they also carry the highest risk of default as there is no collateral backing the borrowing.
The RBI report also flagged the role of fintech lenders in expanding unsecured credit. More than 70% of the total loan book of fintech companies comprises unsecured loans, and over half of these are extended to borrowers below 35 years of age.
Borrowers who have taken unsecured loans from five or more institutions are especially vulnerable to repayment stress, RBI noted.
Between September 2024 and September 2025, fintech lending grew 36.1%, with personal loans forming the bulk of the growth. At the same time, growth in unsecured retail lending by banks has begun to accelerate again, even as lending to large corporates remains sluggish.
Credit card defaults continue to rise as spending surges. As of December, NPAs on credit cards stood at around Rs 6,742 crore, against a total outstanding of over Rs 2.92 lakh crore. Of this, dues pending between three months and one year amount to nearly Rs 34,000 crore.
Overspending and job losses are among the key drivers of card defaults, RBI said.
Personal loans, too, are seeing high repayment stress. The share of loans overdue for more than 90 days has climbed to 3.6%, with the highest default rate seen in loans of Rs 10,000 or less. Defaults in personal loans now account for 1.8% of the total NPAs in the system.
Young borrowers, particularly those under 25, are the most likely to default, with higher stress levels recorded in tier-2 cities and rural regions.
January 01, 2026, 16:39 IST
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