An SBI report reveals unsecured bank lending surged to Rs 46.9 lakh crore, raising its share in total lending to 24.5%. This sharp increase has sparked concerns about growing risk sensitivity and potential credit risk in the banking system.
Unsecured lending by banks in the country has witnessed a sharp rise over the last two decades, increasing concerns around risk sensitivity, according to a report by the State Bank of India (SBI).
SBI Report Flags Massive Growth and Risk
The report stated that unsecured advances (Loans) expanded significantly from Rs 2 lakh crore in FY05 to Rs 46.9 lakh crore in FY25. As a result, the share of unsecured lending in total bank lending increased to 24.5 per cent in FY25 from 17.7 per cent in FY05.
It stated, "Sharp rise in unsecured lending raises risk sensitivity...Unsecured advances expanded from Rs 2 lakh crore to Rs 46.9 lakh crore". The report highlighted that since FY19, the share of unsecured lending has remained continuously above 20 per cent, underscoring the build-up of potential credit risk in the banking system.
According to the report, the sharp rise in unsecured lending reflects growing risk sensitivity, as these loans are not backed by collateral. The expansion in unsecured advances has been rapid compared to overall lending growth, raising concerns about credit quality over the medium term. The growing share of unsecured loans in total lending highlights a structural shift in banks' lending portfolios.
Public Sector Banks Lead the Charge
Public Sector Banks (PSBs) accounted for nearly half of the total unsecured lending in FY25, followed by Private Sector Banks.
Bank group-wise data for FY25 showed that Public Sector Banks held the largest share of unsecured lending at 53 per cent. Private banks accounted for 38 per cent, foreign banks held 7 per cent, while small finance banks contributed 2 per cent of the total unsecured lending.
RBI's Perspective on the Lending Surge
Recently Reserve Bank of India also raised the issue of the rise in unsecured lending in its Financial Stability Report released in December 2025.
Asset Quality a Silver Lining
According to the RBI, in both banks and Non-Banking Financial Companies (NBFCs), outstanding loans held by higher quality borrowers dominated the unsecured business loans category, providing some comfort on asset quality.
Fintechs and Young Borrowers in Focus
The RBI further noted that unsecured loans form more than 70 per cent of the total loan book of fintech lenders. More than half of these loans were extended to borrowers below 35 years of age, highlighting the growing exposure to younger borrowers in the unsecured lending segment.
Despite Risks, NPAs on the Decline
Although the unsecured lending is rising but the non-performing assets of the banks have also been reduced recently. As per the data by the government, gross non-performing assets of the banks have fallen from a peak of 11.46 per cent in 2018 to 2.31 per cent in 2025.
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