Lenders Transition to Secured Credit as Gold and Business Loans Experience Rapid Growth in Q2 FY26
Lenders in India are increasingly favoring secured credit as they navigate the financial landscape in the second quarter of FY26. A recent report from CRIF High Mark reveals that banks and non-banking financial companies (NBFCs) are tightening their lending practices, focusing on established borrowers and secured products. This shift is particularly evident in the surge of gold loans, which have become a popular financing option amid stricter regulations on unsecured lending.
The trend towards secured lending has gained momentum, with banks and NBFCs prioritizing asset quality and risk management. The CRIF High Mark report indicates a significant increase in the exposure to secured products, while lending to new borrowers has been curtailed. Notably, gold loans have emerged as the fastest-growing segment among retail products, with a remarkable 35.8% year-on-year growth, reaching Rs. 14.5 lakh crore by September 2025. The origination value of these loans has also surged by 53.0% year-on-year, with loans exceeding Rs. 5 lakh constituting 30.3% of the total value. This growth is attributed to the collateral backing these loans, which has led to improved asset quality across lenders.
George Alexander Muthoot, Managing Director of Muthoot Finance, highlighted that the tightening of norms on unsecured lending has prompted many individuals and small businesses to seek gold loans as a reliable financing option. This trend reflects a broader shift in consumer behavior as borrowers adapt to changing lending conditions.
Home Loans and Business Credit Expansion
Home loans continue to show robust growth, with the portfolio increasing by 11.1% year-on-year and 2.1% quarter-on-quarter, reaching Rs. 42.1 lakh crore. The average ticket size for home loans has risen significantly, now standing at Rs. 33.2 lakh, up from Rs. 31.4 lakh in the previous quarter. Loans exceeding Rs. 75 lakh accounted for 39.4% of the origination value, indicating a trend towards higher-value loans. Public sector banks have taken the lead in this segment, capturing 50% of the total origination value, surpassing private banks.
In contrast, unsecured credit expansion has slowed down, with lenders becoming more selective about new-to-credit borrowers. The share of new-to-credit borrowers has decreased across various products, including credit cards, which saw a decline in issuance for the second consecutive year. Anil Rawat, risk head at IDFC FIRST Bank, noted that lenders are increasingly focused on balancing growth with risk management, leading to a more cautious approach in credit card originations.
Personal Loans and Vehicle Financing Trends
The personal loan sector is entering a more measured phase, with a year-on-year growth of 12.0% and a quarter-on-quarter rebound of 32.0%, bringing the portfolio to Rs. 2.92 lakh crore. Public sector banks have been instrumental in driving growth for loans exceeding Rs. 10 lakh, which now represent 37.4% of the total value. Meanwhile, non-banking financial companies (NBFCs) dominate the volume of personal loans, holding a 91.4% share, reflecting their focus on smaller loan amounts.
Vehicle financing is also witnessing a revival, with auto loan portfolios growing by 16.3% year-on-year and originations increasing by 17.7% quarter-on-quarter. Vivek Chopra, COO of retail at Tata Capital, attributed this growth to favorable market conditions, including improved vehicle affordability and increased rural demand following a strong monsoon season. Two-wheeler loans have also seen a rise, with borrowers opting for higher-value vehicles, as evidenced by the increase in loans within the Rs. 1 lakh to Rs. 1.5 lakh range.
Asset Quality and Delinquency Trends
While asset quality has generally improved, some segments continue to experience stress. The report indicates that mid-stage delinquency buckets have shown positive trends, although auto loans are an exception, with the portfolio-at-risk (PAR) in the 31-180 days overdue category worsening from 2.8% to 3.1%. This increase is primarily driven by higher delinquency rates among NBFCs. Two-wheeler loans recorded a PAR of 5.5%, particularly in rural and microfinance-linked segments, while credit cards exhibited the highest delinquency rate at 4.1%. Private banks have also seen a slight increase in PAR for the 31-90 days overdue category, although improvements were noted in the 91-180 days segment.
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