Banking Sector Risk: A New Threat Facing Indian Banking? Unsecured loans amounting to ‘so many’ lakhs of crores

• Are Indian banks facing a financial crisis?
• Today’s youth in debt?
• 46.9 lakh crore unsecured loans

Banking Sector Risk: In the last two decades, the Indian banking sector has undergone a major structural change in loan disbursement patterns. State Bank of India (State Bank of India), the country’s unsecured loans have reached a record high of Rs 46.9 lakh crore, according to the latest report. This wholesale increase in collateralized or unsecured lending has sparked a fresh debate about risk in the banking system. According to a report by SBI Research, the total size of unsecured loans was just Rs 2 lakh crore in FY 2005, which is estimated to increase to Rs 46.9 lakh crore by FY 2025. The share of unsecured loans in total bank loans has also increased significantly.

Also read: Todays Gold-Silver Price: Gold prices skyrocketed, silver prices jumped! Read today’s prices before buying

This share was 17.7 percent in FY 2005, which has increased to 24.5 percent by FY 2025. The report shows that the share of unsecured loans in total loans has remained consistently above 20 percent since FY 2019. Since these loans are given without collateral, their increasing number indicates a potential increase in credit risk in the banking system. Despite the sharp increase in unsecured loans, one positive news for the banking sector is that banks’ asset quality has improved. According to government data, the gross non-performing asset (NPA) ratio of banks, which had reached 11.46 percent in 2018, declined to 2.31 percent in 2025.

SBI (SBI) report suggests that while unsecured loans may have accelerated credit growth, the lack of collateral may raise concerns for credit quality in the medium term. A rise in unsecured loans amid declining NPAs is a balancing act for the Indian banking system that regulators and banks need to keep a close eye on.

Also read: Stock Market Today: Impact of Donald Trump’s announcement on the Indian stock market? Experts warned to be careful

Reserve Bank (RBI) raised this issue in their Financial Stability Report (FSR) released in December 2025. According to the central bank, unsecured loans account for more than 70 percent of fintech lenders’ loan books. Worryingly, more than half of these fintech loans are made to borrowers under the age of 35, indicating increased credit risks among the younger generation.