Bank gold loans expanded 88.1% year-on-year to ₹5.52 lakh crore as of July 2026, down from 136.4% in the prior year. This deceleration stems from three factors: RBI's uniform gold loan framework effective April 2026, which introduced tiered LTV ratios (85%/80%/75%) and a 12-month cap on bullet repayment loans; a 27% decline in global gold prices from January 2026 peaks; and base effect normalization after extraordinary growth.
However, the premise that gold loan deceleration will drive significant borrower migration toward unsecured personal loans requires nuance. Gold loans remain the fastest-growing retail segment, with NBFC gold loans up 69.3% to ₹3.41 lakh crore. More importantly, all four major NBFCs are actively expanding gold loan portfolios rather than experiencing borrower exodus. Bajaj Finance grew gold loans 112% and expects to reach 2,700-2,800 branches by year-end. Poonawalla Fincorp operates 460 gold loan branches, while Tata Capital entered through Yogloans acquisition planning 500 new branches, and Aditya Birla Capital launched operations targeting 200 branches by March 2027. Transcripts +4
The stabilization of gold prices has reduced the collateral-value tailwind, but this hasn't triggered structural shifts toward unsecured lending. Gold loans retain advantages: faster approval (under 24 hours), no income proof required for smaller amounts, and lower interest rates (8-28% vs. unsecured typically 18-24%). The RBI's November 2023 risk weight increase on unsecured credit (from 100% to 125%) makes gold loans relatively more attractive for lenders.
Personal loans grew 16.2% in FY26, accelerating from 11.7% in FY25 but remaining below the 27.8% peak witnessed in FY24. This represents a measured recovery following regulatory tightening. The growth trajectory over five years shows distinct phases: recovery (FY21-FY22), rapid expansion (FY23-FY24), moderation (FY24-FY25), and gradual revival (FY25-FY26).
Gold loans have emerged as the standout performer with a 35.3% six-year CAGR, significantly outpacing other personal loan categories. This suggests a structural preference for collateral-backed lending post-regulatory tightening, rather than a simple substitution effect between gold and unsecured loans.
Poonawalla Fincorp has achieved a 53% secured and 47% unsecured portfolio mix, with management targeting a 50-50 balance. This creates operating leverage as unsecured demand accelerates through multiple channels. Secured loans (LAP, Gold, Pre-owned Car) typically access lower-cost funding due to collateral backing, creating a funding cost buffer that supports higher-yield unsecured portfolio expansion. Secured products offer lower credit costs while unsecured products (Prime Personal Loan: 13-16% yields) provide higher margins, enabling portfolio-level yield optimization. Transcripts
The company achieved remarkable efficiency improvements, with cost-to-income ratio declining 1,310 basis points from 57.7% in Q1 FY26 to 44.6% in Q1 FY27. Key drivers include AI-driven structural efficiencies—the "AI brain" moved from build to execution phase—and digital transformation, with 38% of Prime Personal Loan disbursements processed through fully straight-through digital processing, up from 33% in the previous quarter. Transcripts
This efficiency appears sustainable as Prime Personal Loan disbursals scale from ₹537 crore monthly. Digital adoption is accelerating (28% → 33% → 38% over three quarters), AI capabilities scale with data accumulation, and fixed technology investments provide increasing marginal benefits as volume grows. Transcripts
The path to 3.0-3.5% ROA by June 2028 from current 1.98% critically depends on sustained credit cost containment. GNPA stands at 1.37% with consistent improvement, and credit costs declined from 2.6% to 2.4% year-on-year. The company's risk-first framework, AI-powered analytics, and collection excellence provide confidence, but execution risks remain around maintaining credit quality during rapid expansion. Transcripts
Tata Capital takes a fundamentally different approach, using unsecured lending as a strategic margin lever within a ₹2.91 lakh crore AUM franchise. Unsecured retail loans represent only 10.3% of net AUM (₹26,202 crore), compared to Poonawalla's 47% direct exposure. The company has identified seven high-margin products with disbursement IRRs ranging from 15-25%, including personal loans (15-16%), business loans (17-18%), and microfinance (~25%). InvestorPresentations +2
Tata Capital achieved exceptional 73% year-on-year growth in personal loan disbursals while reducing credit costs from 1.6% to 1.0% in Q1FY27. This disciplined scaling reflects strategic timing—the company became conservative about unsecured lending "about two and a half years back" during market stress and began scaling from Q1FY26 as credit costs eased. InvestorPresentations +3
The company targets 2.5-2.7% ROA by FY28 from current 2.3%, with management stating two-thirds of improvement should come from margin improvement and one-third from operating leverage. As unsecured retail scales from 10.3% of AUM, incremental earnings impact could contribute 20-30 basis points to ROA, assuming credit costs remain at 1.0-1.2%. Transcripts +1
Aditya Birla Capital has achieved exceptional balance between yield expansion and asset quality through premium customer selection. Personal and consumer loan AUM grew 41% year-on-year to ₹23,267 crore, with >95% of loans extended to borrowers with 700+ credit scores (70% above 750). The company maintains Gross Stage 2 and Stage 3 assets at 1.1% and 1.3% respectively, down 230 basis points year-on-year. Transcripts +2
Current portfolio yields stand at 16.2%, down from 19% previously, reflecting a deliberate focus on risk-adjusted returns. Management targets potential margin expansion if yields return to 18-19%. The 25% unsecured lending exposure represents a measured approach compared to Poonawalla's 47%, with gradual expansion planned to 27-28% and eventually 30%. Transcripts +2
The company employs sophisticated underwriting mechanisms including scorecard-based customer selection with extensive alternate data use, straight-through processing, behavior-based predictive modeling, and AI-enabled tools like Fintellect for credit assessment. This technology-driven discipline appears sustainable as yields expand, with structural improvements built into the underwriting framework. InvestorPresentations +1
The divergent GNPA levels reflect fundamentally different risk appetites. Bajaj Finance maintains industry-leading 0.96% GNPA with extremely conservative thresholds at 30-40% of industry levels on 30+ and 60+ DPD metrics. Poonawalla Fincorp's 1.37% GNPA reflects moderate-high risk appetite driven by 47% unsecured concentration, though dramatic improvement in 6-MoB-30+ (from 1.66% to 0.64%) demonstrates effective risk calibration. Tata Capital's 1.90% GNPA reflects conservative scaling with historical discipline, while Aditya Birla Capital's 1.3% Stage 3 reflects conservative risk appetite focused on premium segments. Transcripts +4
All four NBFCs have developed sophisticated feedback loops between growth and asset quality. Poonawalla integrates live collection trends and AI-driven propensity signals directly into underwriting, while Aditya Birla employs proactive cohort-based management, eliminating segments not fitting risk appetite on a monthly basis. Bajaj Finance demonstrates micro-focused correlation between credit quality improvement and business momentum. Transcripts +2
The current unsecured credit cycle appears significantly healthier than previous cycles. Personal loan growth at 16.2% represents more sustainable pace versus 27.8% peak in FY24. Consumer debt-to-GDP growth has moderated to 1% from 2% historical levels. All NBFCs show improving credit costs and asset quality, with regulatory framework more mature following RBI's gold loan guidelines and risk weight increases. Transcripts
The interplay between abundant liquidity (overall bank credit grew 19.3% YoY), healthy household leverage, and comprehensive RBI oversight suggests this cycle may prove more sustainable. However, execution risks remain around maintaining underwriting discipline during competitive pressure, potential economic downturns, and model risk in AI-driven systems. Continuous monitoring of early delinquency indicators, GNPA trends, and household leverage growth will be essential to ensure cycle health is sustained.
