The Indian personal loan market has spent the past 24 months being recalibrated by the RBI’s tightening of capital requirements on unsecured retail lending. The sector that grew at 25 to 30 per cent year-on-year through 2022 and 2023 has slowed materially, and the May 2026 picture is more disciplined but also more divergent across lender categories.

Aggregate personal loan growth at scheduled commercial banks has moderated to mid-teens year-on-year, down from the headline rates of the boom period. The deceleration is more pronounced at private sector banks than at public sector banks, where the growth was less aggressive to begin with. The non-bank financial company segment has slowed more sharply, with several mid-sized players visibly contracting their unsecured book in response to capital cost increases and asset quality pressures.

The asset quality story is where the more interesting analysis is happening. Headline GNPA ratios on personal loans at banks remain low by historical standards, but the early-stage delinquency indicators — 30-day past due, 60-day past due — have ticked up in specific cohorts in ways that warrant attention. The vintage analysis matters here: loans originated through 2022 and into early 2023 are showing different performance profiles than loans originated under the tighter underwriting that came into force from late 2023 onwards.

Where the risk is concentrated

Three concentrations are visible in the data.

First, smaller-ticket personal loans (sub-₹1 lakh) originated through digital channels at fintech platforms and their bank partners. The vintage performance on this cohort has deteriorated meaningfully across multiple lenders. The income verification practices in this segment were less rigorous than at traditional banks, the borrower demographics skewed toward first-time formal-credit users, and the digital origination flow encouraged speed over scrutiny. The remediation across the segment is now in progress but the existing book is working through its delinquency cycle.

Second, top-up personal loans on existing borrower relationships at certain private sector banks. The aggressive cross-sell of additional unsecured credit to customers already running mortgage and auto loan exposures produced concentrations of debt at the household level that weren’t always visible in the per-loan analytics. The performance on this layer has been worse than the underlying single-product personal loan performance would have suggested. Several banks have pulled back from aggressive top-up cross-sell as a result.

Third, specific geographic concentrations. The performance of personal loan portfolios varies substantially by geography in ways that aren’t fully explained by income demographics alone. Tier-2 city portfolios at certain lenders have produced delinquency rates that exceed expectations, partly reflecting the post-pandemic income volatility in those segments and partly reflecting underwriting models that didn’t adequately differentiate within the geographic category.

What’s working in current underwriting

The lenders who came through the past 18 months with the strongest portfolios share a few characteristics in their underwriting approach.

They invested in income verification depth before the regulatory requirements forced it. The shift from documentary income proof to bank statement analytics, with proper treatment of variable income components, was a substantive change in underwriting quality. Lenders who made this change voluntarily in 2022-23 are seeing it pay off in current portfolio performance.

They use bureau data with sophistication that goes beyond the headline score. The CIBIL score remains foundational but the better lenders are using bureau utilisation patterns, recent inquiry behaviour, and behaviour on existing facilities to identify risks that the score alone doesn’t capture. The lenders who relied on score-based decisioning alone are finding their portfolios more exposed than those who used bureau data more granularly.

They size individual exposures relative to verifiable income with discipline. The debt-to-income ratios that became normalised during the boom period — 50 per cent and above for some borrower segments — have been pulled back to more conservative levels at well-managed lenders. The customer experience friction is real but the portfolio quality benefit is showing up.

They monitor delinquency intensively and act early. The lenders who treated 30-day past due as a meaningful operational signal and pursued early collection have done substantially better than lenders who treated 60 or 90 days as the trigger point. The gap in roll rates is wide enough to matter for portfolio economics.

What’s getting harder

Customer acquisition costs in personal lending have risen meaningfully. The performance marketing channels that produced cheap origination through the 2021-23 period have priced in correctly, and the cost per funded loan has increased substantially. The lenders who built efficient origination infrastructure during the cheap acquisition window are well-positioned. The lenders who relied on the cheap channels and didn’t invest in their own funnel are struggling with unit economics.

Pricing power has compressed. The risk-based pricing models that allowed lenders to charge premiums on weaker credit profiles have been disciplined by the regulatory environment and by competitive pressure on the better borrowers. The lenders who built portfolios on the assumption of broad risk-based pricing have had to recalibrate their unit economics.

Cross-sell economics have weakened. The expectation that personal loan customers would convert to other product holdings at predictable rates has not held in the post-tightening environment. Customers are more selective, the cross-sell yield is lower, and the customer lifetime value calculations that supported aggressive personal loan acquisition are being revised down.

What I’d watch

Three things over the next two quarters.

The vintage performance of personal loans originated under the tightened standards from 2024. If the early indicators continue to suggest that this vintage is performing materially better than the 2022-23 vintage, the regulatory tightening will be vindicated and the market structure will continue stabilising. If the early indicators deteriorate, further tightening is plausible.

The recovery (or otherwise) of the smaller fintech-originated personal loan segment. Several mid-sized fintech-bank partnerships have visibly contracted; whether they recover, consolidate, or exit the segment will shape the structure of the digital personal loan market for the next cycle.

The behaviour of public sector banks in personal lending. The PSU banks have been comparatively cautious through the tightening cycle. Whether they push back into the segment as the private sector retreats, or maintain their conservative posture, has implications for both market growth and competitive dynamics through 2026 and 2027.

The honest summary: the Indian personal loan market in 2026 is in a healthier place than the boom-period growth suggested it could be. The risk-taking has been disciplined, the underwriting standards have improved, and the market is finding a more sustainable equilibrium. The cost of that has been lower growth and a difficult period for some lenders. The benefit is a more durable market structure heading into the next cycle.