- India’s personal loans expected to outpace gold loans in unsecured credit growth soon
- Gold loans grew 50% YoY in FY26, reaching Rs 18.6 lakh crore, 5% of GDP
- Personal loan growth accelerated to 30% YoY for NBFCs and 9% for banks by August
India's lenders are staring at a changing of the guard in unsecured credit, with personal loans set to reclaim the growth crown from gold loans, according to UBS Global Research. The brokerage's note, "India Financials: The beginning of an unsecured upcycle?", flags a sharp divergence in momentum between the two categories.
Gold loans surged 50% year-on-year in FY26, the fastest pace in the period UBS tracked, pushing the segment's share of GDP up five-fold since FY19, from 1% to 5%. The book stood at roughly Rs 18.6 lakh crore by the end of FY26, per data from credit bureau CRIF High Mark.
Personal loans, by contrast, spent the past two years in a slump triggered by regulatory tightening and rising borrower leverage. That is now reversing. Data through August showed personal loan growth accelerating to around 30% year-on-year for NBFCs and 9% for banks, the best pace for both categories in two years, UBS analysts Alok Srivastava, Yash Agarwal and Karan Paresh Trivedi wrote.
Also Read | Layoffs Are Rising In Tech, But These Skills Are Helping People Unlock Better Pay
Understanding gold loans versus personal loans.
Photo Credit: NDTV Profit
The turning point, in UBS's view, is gold prices themselves. With prices stabilising, the brokerage expects gold loan growth to moderate, removing a segment that had functioned as a substitute for personal loans over the past few years. NBFCs have used gold lending to grab market share aggressively, more than six-fold since FY18, from 3% to 20% of the segment by August. UBS expects that pace of share gain to slow as the underlying growth driver fades.
Asset quality tells a similar story in reverse. Personal loan delinquencies in the 1-30 day past-due bucket have steadily improved, falling from 3.5% in June 2024 to 1.8% in August 2026. Gold loans, however, have shown the opposite trend recently, with delinquencies rising from 0.7% in March to 2.6% in August, the one soft spot UBS flagged in an otherwise clean unsecured credit cycle.
The shift has already shown up in UBS's stock calls. The brokerage upgraded Bajaj Finance to Neutral from Sell, raising its price target to Rs 1,100 from Rs 910, citing cyclical earnings upgrades on yield-accretive growth once personal loans pick up. L&T Finance was upgraded to Buy from Neutral, with the target raised to Rs 380 from Rs 350, on expectations of faster personal loan growth and return on assets improving toward 3%. UBS kept its Buy rating on Poonawalla Fincorp, Cholamandalam Investment and Finance, and Shriram Finance, while staying Neutral on HDB Financial Services, SBI Cards and Mahindra & Mahindra Financial Services.
Among banks, UBS named ICICI Bank, HDFC Bank and Axis Bank as best placed to benefit from the personal loan recovery.
The brokerage played down concerns that a looming rate hike could derail the thesis. It expects a shallower 50 basis point hiking cycle by the end of CY26, against a more aggressive 100 basis point move priced in by the derivatives market, and pointed to surplus system liquidity from foreign currency non-resident (FCNR) deposit inflows of roughly Rs 12-13 lakh crore as a cushion for NBFC funding costs.
ALSO WATCH:
Essential Business Intelligence, Sharp Market Insights, Practical Personal Finance Advice, Daily Fuel, Gold and Silver Prices and Latest Stories — On NDTV Profit.
