Borrowers Shift to Secured Loans Amid Tighter Norms on Unsecured Lending

With the Reserve Bank of India (RBI) tightening norms on unsecured credit in late 2023, both banks and non-banking financial companies (NBFCs) have become cautious in extending personal loans and credit card debt. As a result, borrowers are now increasingly opting for secured alternatives such as:

• Loans against Fixed Deposits (FDs)
• Loans against Shares and Bonds
• Gold Loans (Jewellery as Collateral)

Key RBI Measures

• November 2023: RBI increased risk weights on unsecured personal loans and credit card dues.
• Also raised risk weights on NBFCs’ unsecured loan exposure (later rolled back in February 2025).

Data Trends: Shift to Secured Credit

• Loan against FDs: Growth rose from 6.7% (Dec 2023) to 11.9% (Feb 2025)
• Loan against Shares/Bonds: Jumped from 8.5% to 16.7%
• Gold Loans: Growth spiked from 18.6% to 87.4%
• In contrast:
  • Credit card dues growth slowed from 32.6% to 11.2%
  • Unsecured loans growth fell from 22.9% to 7.9%

Why Borrowers Are Switching

• High demand for credit persists.
• Collateral-backed loans are:
  • Less risky for lenders
  • More accessible for borrowers with available assets
• Gold price surge has made gold loans more lucrative—less gold needed for the same loan value
• Retail customers are now adopting products like loans against shares, earlier restricted to HNIs.

With the regulatory environment tightening around unsecured consumer credit, a paradigm shift towards collateral-backed loans is underway. This reflects not only a more cautious lending approach by financial institutions but also a changing borrower mindset focused on accessibility, affordability, and credit health.

TET