Unsecured Bank Lending Jumps to ₹46.9 Lakh Crore, Raising Risk Concerns: SBI

Unsecured lending by Indian banks has surged dramatically over the past two decades, raising concerns about mounting risk sensitivity in the banking system, according to a report by the State Bank of India (SBI).

The report shows that unsecured advances expanded from just ₹2 lakh crore in FY05 to ₹46.9 lakh crore in FY25. As a result, the share of unsecured loans in total bank credit climbed sharply from 17.7% in FY05 to 24.5% in FY25.

“The sharp rise in unsecured lending raises risk sensitivity,” the report noted, highlighting that these loans are not backed by collateral and are therefore more vulnerable during economic stress.

SBI pointed out that since FY19, unsecured lending has consistently accounted for over 20% of total bank credit, signalling a sustained build-up of potential credit risk. The pace of growth in unsecured loans has also outstripped overall lending growth, prompting concerns around credit quality over the medium term.

The expanding share of unsecured loans reflects a structural shift in banks’ lending portfolios. In FY25, Public Sector Banks (PSBs) accounted for the largest share—53%—of total unsecured lending, underscoring their central role in this trend. Private sector banks followed with a 38% share, while foreign banks accounted for 7% and small finance banks for the remaining 2%.

The rise in unsecured lending has also drawn regulatory attention. The Reserve Bank of India (RBI), in its Financial Stability Report released in December 2025, flagged similar concerns, noting the rapid growth of unsecured credit across banks and non-banking financial companies (NBFCs).

However, the RBI offered some reassurance on asset quality. It observed that higher-quality borrowers continue to dominate unsecured business loans in both banks and NBFCs, providing partial comfort against immediate credit stress.

The RBI also highlighted a notable trend in fintech lending. Unsecured loans account for more than 70% of fintech lenders’ loan books, with over half of these loans extended to borrowers below the age of 35—pointing to rising exposure to younger borrowers in the unsecured credit segment.

Despite the rapid expansion in unsecured lending, banks’ overall asset quality has improved in recent years. Government data shows that gross non-performing assets (NPAs) declined sharply from a peak of 11.46% in 2018 to 2.31% in 2025, suggesting that rising risk has, so far, not translated into a deterioration in headline NPA numbers.

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