RBI Warns of Rising NBFC Bad Loans and Unsecured Credit Risks

The Reserve Bank of India (RBI) has warned that bad loans in non-banking financial companies (NBFCs) are expected to rise.

Under normal conditions, the percentage of bad loans is predicted to increase from 2.3% to 2.9% by September 2026.

This could cause the overall financial strength of NBFCs to decrease slightly, but it will still be above the required minimum.

However, some NBFCs might struggle to meet the minimum financial strength requirements, especially if the economic situation worsens.

The RBI also found that a few NBFCs might have trouble managing their money in the next year.

Additionally, the RBI noted that unsecured loans, which are loans not backed by collateral, now account for the highest share of repayment defaults in the banking system.

These loans are popular because they can be availed easily and used for any purpose, but they also carry the highest risk of default.

Fintech lenders are playing a significant role in expanding unsecured credit, with over 70% of their loan book comprising unsecured loans, and more than half of these loans are extended to borrowers below 35 years of age.

Young borrowers, particularly those under 25, are the most likely to default, with higher stress levels recorded in tier-2 cities and rural regions.