Summary of this article
Personal loans disbursements rise sharply, driven by stronger borrower demand
Gold and auto loans show faster growth in FY26
Lenders prioritise asset quality and cautious credit expansion strategy
Consumption credit in the country is showing signs of a wider recovery in FY26, even though lenders continue to remain cautious about asset quality and risk management. According to the report Consumption Credit Update by JM Financial, loan disbursements have strengthened across retail lending segments, pointing out that the early recovery observed in the first half of FY26 is continuing.
The report states that growth in credit consumption is becoming more broad-based, with improvements seen both in secured and unsecured loan segments. However, the rate of expansion is still slower than what was observed in terms of rapid credit growth between FY22 and FY24. Lenders are now seeking more quality and controlled growth in their portfolios and less aggressive growth.
Personal Loans Experience Strong Growth
One of the strongest disbursement trends in the third quarter of FY26 was for personal loans. Disbursements in this segment increased by around 36 per cent on a year-on-year (YoY) basis, which was supported by heightened borrower activity and an increase in loan volumes.
Public sector banks increased their value share as a result of increased average ticket sizes. At the same time, non-banking financial companies (NBFCs) remained well ahead, in terms of volume, as they cater to mostly small-ticket personal loans.
Asset quality in this segment also improved in the quarter. Early-stage delinquencies fell as lenders tightened their underwriting standards and as trends for repayment among borrowers stabilised.
Consumer Durable Loans Catch On
Consumer durable financing also showed improving momentum for the quarter. Disbursements increased at the rate of about 12 per cent every year, but outstanding loan growth also picked up pace.
NBFCs recovered some of their market share in this category. This segment is usually led by buying household appliances and electronic products, which usually use small-ticket financing opportunities.
At the same time, delinquency levels showed sequential improvement, which is a sign of some stabilisation in the repayment behaviour of borrowers.
Credit Card Issuance Is Still Low
Credit card issuance was still relatively weak compared to other consumption credit segments. New card issuance fell dramatically in the quarter, and the number of cards in circulation grew slowly. Outstanding balances also remained mostly flat.
Private sector banks still dominated this segment and made about three-fourths of the new card issues.
Asset quality trends in credit cards were mixed. Early-stage delinquencies improved successively, whereas higher-stage delinquencies experienced a weak increase over the period.
Secured Lending Segments Remain Stable
Among secured lending products, the home loan disbursement was steady. The report mentions a continuing trend to increase the amount of home loans, which are of higher ticket value.
Public sector banks and housing finance companies improved their market share in this segment marginally. Competitive pricing and excellent distribution networks aided their growth.
However, some stress was still evident in smaller ticket home loan performances, especially those associated with lower-income borrowers. Overall levels of delinquency in the segment remained fairly stable.
Auto And Gold Loan Show Improvement
Auto loans had stronger sequential growth during the period. Lower average ticket sizes and policy factors like GST rationalisation encouraged demand in this segment.
Public sector banks increased their market share in auto financing, and private banks and non-banking lenders incurred some loss in their share. Asset quality trends for most ticket categories improved.
Two-wheeler financing showed mixed performances. Disbursements increased slightly on a year-on-year basis, but sequential growth was more significant due to festive demand and price adjustments based on GST adjustments. NBFCs increased their footprint since demand continued to be concentrated in the smaller ticket loans.
Gold loans became one of the fastest-growing segments in the quarter. Loan originations rose sharply, as increases in gold prices caused an increase in the value of collateral and larger ticket sizes. Delinquency levels also went down for gold loans, which are indicators of the quality of assets.
According to the report, lenders are taking a more selective approach now as compared to the previous phase of credit expansion. Instead of seeking aggressive balance sheet growth, the emphasis has moved to disciplined underwriting, selective growth of loans and maintaining a stable quality of portfolio across the retail lending segments.
