UBS has upgraded four major Indian non-bank lenders following expectations of a fresh unsecured credit growth cycle, with the brokerage now flagging a sharp divergence in momentum between personal loans and gold loans. The brokerage upgraded L&T Finance to Buy from Neutral and raised its target price to ₹380 from ₹350. Additionally, Shriram Finance, Poonawalla Fincorp and Cholamandalam Investment were retained as Buy-rated stocks among UBS's most favoured NBFCs. Bajaj Finance was upgraded to Neutral from Sell with its target increased to ₹1,100 from ₹910. According to UBS reports, India is entering a strong unsecured credit growth cycle, with personal loans expected to outpace gold loans in unsecured credit growth soon. The brokerage noted that unsecured lending has remained broadly flat as a share of household leverage over the past three years, while asset quality has improved across several segments.
India's lenders are witnessing 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. 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 ₹18.6 lakh crore by the end of FY26, per data from credit bureau CRIF High Mark. However, personal loan growth accelerated to around 30% year-on-year for NBFCs and 9% for banks by August, marking the best pace for both categories in two years. The turning point comes as gold prices stabilise, with UBS expecting 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, rising over six-fold since FY18, from 3% to 20% of the segment by August, though the brokerage forecasts the pace of share gain to moderate as the underlying growth driver fades.
Bajaj Finance shares gained 2.5% on Wednesday, trading at ₹1,034.4, following the positive brokerage calls, with the stock still up 7% so far this year. The positive market reaction reflects investor confidence in the brokerage expectations of a stronger recovery in personal-loan growth. L&T Finance shares rose 3% to ₹313 following the UBS upgrade announcement, with the stock continuing to benefit from the broader NBFC sector optimism. UBS continues to favour L&T Finance alongside Poonawalla Fincorp, Cholamandalam Investment and Finance and Shriram Finance as it expects the unsecured lending cycle to revive. UBS maintains its favourable stance on these NBFCs, with the brokerage expecting the improvement in personal loan growth to help earnings growth across its preferred lenders as the earlier earnings downgrade cycle comes to an end.
UBS expects personal loan growth to accelerate significantly, projecting around 30% for NBFCs and 9% for banks. According to UBS, CRIF data for August 2026 showed personal loan growth accelerating to around 30% for NBFCs and 9% for banks, marking a two-year high. For L&T Finance, UBS expects sustained 24% loan compound annual growth rate over FY26-FY28, with loan growth estimated at 25% in FY27 and 24% in FY28. The brokerage notes that L&T Finance has had strong loan growth acceleration from 14% in FY25 to 25% in FY26, driven by a strong pick-up in personal loan growth through partnership models and new AI initiatives. For Shriram Finance, UBS expects 19% loan growth in both FY27 and FY28, with net interest margin improving to 10% in FY27 from 8.9% in FY26 before easing slightly to 9.9% in FY28. Poonawalla Fincorp is expected to remain among the fastest-growing names with 36% loan growth in FY27 and 32% in FY28, while Cholamandalam Investment is projected to grow 23% in FY27 and 21% in FY28.
The shift in unsecured credit momentum is reflected in improving asset quality metrics. 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, while gold loan delinquencies have risen from 0.7% in March to 2.6% in August. Among banks, UBS sees ICICI Bank, HDFC Bank and Axis Bank benefiting from a pick-up in personal loans. UBS plays down concerns that a looming rate hike could derail the thesis, expecting 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. The brokerage expects ₹12-13 lakh crore of FCNR inflows to create excess liquidity as system credit demand of around ₹45-50 lakh crore is unlikely to absorb the entire pool in the near term, which could support NBFC funding through bank lines and NCD markets.
