New Delhi [India], August 12 : Consumer loan growth in India appears to have bottomed out, and a faster recovery is expected with the moderation in credit costs in the coming quarters, noted a recent report by the global financial services firm Morgan Stanley.
The report highlighted that unsecured consumer loan growth, which had seen robust expansion in previous years, has slowed sharply over the past two years.
Year-on-year growth dropped from 31 per cent in the first quarter of FY23 to just 8 per cent in the fourth quarter of FY25, marking a significant moderation in lending activity.
Morgan Stanley stated "Unsecured Consumer Loans: Loan growth appears to have bottomed; we expect faster loan growth recovery and credit cost moderation".
The report data further showed that early-stage delinquencies, measured by Portfolio at Risk (PAR) for 31-90 days, worsened across most lender categories in March 2025, except for private banks.
Public sector banks recorded an increase in their PAR 31-90 per cent ratio to 2.61 per cent in March 2025, compared with 2.45 per cent in March 2023.
Non-banking financial companies (NBFCs) also saw a rise in early delinquencies, with the ratio climbing to 2.19 per cent from 2.01 per cent over the same period.
In contrast, private banks improved their performance, with the ratio falling to 1.11 per cent from 1.26 per cent during the same period.
On the disbursement side, growth slowed considerably in FY25. The report attributed this slowdown to the Reserve Bank of India's decision to increase risk weights for consumer credit, along with heightened risk perception in the unsecured segment and rising delinquency rates.
The report suggested that while unsecured consumer loan growth has likely to be bottomed out, the coming quarters may see a gradual recovery supported by better credit cost management and a more cautious lending strategy from financial institutions.
However, it also cautioned that the rise in both early and late-stage delinquencies highlights the need for ongoing vigilance over asset quality in this segment.
Overall, the findings in the report pointed to a phase of consolidation in the unsecured consumer lending market, as lenders balance growth ambitions with the imperative to maintain asset quality.