Riskiest Loans in India: Why Defaults Are Rising in Personal Loans and Credit Cards

Easy access to credit has made borrowing simpler than ever, but it has also created a growing financial risk. According to the latest Reserve Bank of India (RBI) report, some of the most easily available loans in India have now become the riskiest, with default levels rising sharply. Unsecured loans such as personal loans and credit cards are emerging as the biggest contributors to retail loan stress in the banking system.

Unsecured Loans Top the Default Chart

RBI data shows that unsecured loans account for 53.1% of total retail loan defaults across scheduled commercial banks in India. These loans do not require any collateral, making them attractive to borrowers but highly risky for lenders.

The problem is even more pronounced in private sector banks, where nearly 76% of total loan defaults are linked to unsecured lending. In contrast, public sector banks are relatively less exposed, with unsecured loans contributing only 15.9% of their total defaults. Overall, the Non-Performing Asset (NPA) ratio for unsecured loans stands at around 1.8%, highlighting rising stress in this segment.

Why Unsecured Loans Are So Popular—and Dangerous

Unsecured loans have gained popularity because they are:

• Easy to obtain

• Disbursed quickly

• Flexible in usage, with no restriction on spending

However, the biggest drawback is the absence of collateral. Since there is no asset backing the loan, the risk of default increases significantly when borrowers face financial stress. High interest rates further add to the repayment burden, making these loans difficult to manage over time.

Fintech Lending Raises Red Flags

The RBI has also expressed concern about the growing role of fintech lending companies in unsecured credit. According to the report:

• Over 70% of fintech lenders’ loan portfolios consist of unsecured loans

• More than half of these loans are given to borrowers below the age of 35

• Borrowers with unsecured loans from five or more institutions are facing the highest repayment stress

Between September 2024 and September 2025, fintech lending grew by a sharp 36.1%, driven largely by personal loans. This rapid expansion has increased the risk of over-borrowing, especially among young consumers with limited income stability.

Credit Card Defaults Continue to Rise

Credit card loans are another major area of concern. RBI data reveals that:

• Credit card NPAs have risen to around ₹6,742 crore

• Total outstanding credit card dues exceed ₹2.92 lakh crore

• Nearly ₹34,000 crore of this amount has been overdue for three months to one year

Excessive spending and job losses have been identified as the primary reasons behind rising credit card defaults. Many users rely heavily on cards for lifestyle expenses, but struggle to repay once income becomes uncertain.

Growing Stress in Personal Loans

The pressure is also mounting in the personal loan segment. Loans overdue for more than 90 days now account for 3.6% of total personal loans. The default rate is particularly high in small-ticket loans of ₹10,000 or less, which are often taken for short-term needs.

The RBI report highlights that borrowers under the age of 25, especially those living in tier-2 cities and rural areas, are the most vulnerable. Limited financial literacy, unstable employment, and easy digital loan access have increased the risk for this group.

Shift in Lending Trends

While unsecured retail lending is accelerating again, lending to large corporate borrowers remains sluggish. Banks and NBFCs are increasingly focusing on retail customers to drive growth, but this shift is also amplifying systemic risk due to higher default probabilities.

What This Means for Borrowers and Banks

For borrowers, the rising default trend is a warning sign. Multiple unsecured loans can quickly lead to a debt trap, damaging credit scores and long-term financial stability. For banks and lenders, unchecked growth in unsecured lending could result in higher NPAs and regulatory scrutiny.

Key Takeaway

The RBI’s latest findings clearly show that personal loans and credit cards are currently the riskiest loan products in India. Easy availability, aggressive fintech lending, and over-reliance on unsecured credit—especially among young borrowers—are driving higher defaults. While these loans can meet urgent financial needs, they require careful borrowing and disciplined repayment to avoid long-term financial stress.

As unsecured lending continues to grow, both borrowers and lenders must act cautiously to prevent these “easy loans” from becoming a major financial crisis.