Personal loans take 34% of India's household debt; UBS sees 30% NBFC growth

India’s personal-loan market is showing signs of a fresh pickup even as household borrowing becomes increasingly tilted towards consumption, putting the country’s credit cycle at an interesting crossroads. Personal loans accounted for 34% of outstanding household debt in FY26, up from 29% in FY20, while UBS expects personal-loan growth to accelerate to around 30% for NBFCs and 9% for banks.

The contrasting indicators were mentioned by two recent reports from 360 ONE Asset Management and UBS, which point to both the growing importance of personal credit and the risks that come with a greater reliance on unsecured and consumption-oriented borrowing.

Personal loans gain share in household debt

360 ONE, in its September Panorama report, said the composition of household borrowing has shifted towards consumption-oriented loans rather than loans used for productive purposes or asset creation.

The two reports point to different sides of the same trend — rising borrowing by households and improving appetite among lenders to extend unsecured credit.

Personal loans take a bigger share

According to 360 ONE, household gross financial savings increased only marginally to 12.4% of GDP in FY26 from 11.9%, while financial liabilities rose to 6.2% from 4.9%.

“Household debt accumulation has been elevated since FY23,” the report said, adding that this had pushed net financial savings below the post-FY10 average of 7.9% of GDP.

Household debt-to-GDP has also risen to 49%, compared with 45% for the emerging-market aggregate, 360 ONE said. It warned that rising household financial leverage could lead to a build-up of stress in the household sector.

The composition of borrowing is also changing. Personal loans, which are largely consumption-oriented, accounted for 34% of outstanding household debt in FY26, up from 29% in FY20. In contrast, housing loans — linked more closely to asset creation — fell to 27% from 30%.

“The rise in consumption-oriented loans, rather than productive or asset-creation loans, is a concern for long-term household financial health,” 360 ONE said.

UBS sees unsecured credit cycle turning

UBS, however, sees the lending environment from a different perspective.

“We believe India is entering a strong unsecured credit growth cycle, led by personal loans,” the brokerage said in its September 22 report.

It attributed the expected recovery to healthy asset quality, stable unsecured household leverage, abundant system liquidity and a more risk-on stance among lenders. UBS said unsecured leverage had risen from 6% of GDP in FY19 to 10% in FY24 but had since stabilised.

The recovery is already visible in loan growth. CRIF data cited by UBS showed personal-loan growth of around 30% for NBFCs and 9% for banks in August 2026, both marking strong recent growth, with the NBFC figure at a two-year high.

UBS said asset quality across unsecured segments was at its strongest level in several quarters, although some stress remained in low-ticket business loans.

“As a result, we believe the unsecured cycle is turning, with personal loans likely to lead the next leg of growth,” UBS said.

Liquidity could fuel the next credit push

A major common factor in both reports is the surge in banking-system liquidity following FCNR inflows.

UBS estimates around ₹12–13 trillion of FCNR inflows could create excess liquidity, while 360 ONE said total inflows under the RBI’s concessional FX swap windows had reached $144 billion by September 18, including $133 billion through FCNR(B) deposits.

UBS said the liquidity surplus could support NBFC funding through bank lines and the bond market, “keeping funding conditions favourable.”

It also said the market may be underestimating the recovery in personal loans, which could support earnings and return on assets for lenders.