Festive season ahead, Nomura report says retail lending stress easing, signs of recovery

The retail lending market, which had earlier shown worrying signs of increasing stress for banks and Non-Banking Financial Companies (NBFCs) over recent quarters, is now beginning to stabilise with early signs of recovery, according to the Nomura research report on India Banks, dated 15 September 2025, based on CRIF June 2025 credit bureau data.

The report highlights that key consumer-linked loan segments are showing improved performance, particularly in personal loans and credit cards.

The report indicated that asset quality in the personal loan segment remained steady across all lender categories and ticket sizes, with PAR (31-90 days past due) easing after a slight increase in Q4 FY25.

The report highlights that asset quality in the personal loan segment has remained stable across lenders and ticket sizes, with delinquencies in the 31–90 days past due (DPD) bucket declining after a slight rise in the previous quarter.

In the credit card sector, new delinquencies in the 1–30 DPD category saw a significant decline, improving by 120 basis points year-on-year and 20 basis points quarter-on-quarter.

The report notes that while growth in personal loans and credit cards has slowed compared to last year—9% year-on-year for personal loans and 12% for cards in June 2025 versus 22% and 27% respectively in June 2024—asset quality improvement lays the foundation for a rebound in the coming quarters.

This slowdown indicates that, despite slower growth in card spending and new card issuances, customers are becoming more disciplined in repayments, or banks are implementing stronger collection strategies.

The findings also indicate a shift in strategy among lenders. Instead of pursuing high growth at the risk of increasing defaults, banks and financial institutions are focusing on maintaining portfolio quality and sustainable growth. This disciplined approach could lay the groundwork for healthier credit expansion in FY26.

The report also noted that it expects stronger growth in unsecured retail lending, reaching around 10% of system credit as asset quality improves. Credit expansion looks favourable amid the RBI’s policy easing, enhanced liquidity, and tax relief.