India's Unsecured Retail Loans to Hit Peak Delinquencies in FY26

According to S&P Global Ratings, the bad loan formation in India's unsecured retail lending segments, including personal loans and microfinance, is expected to peak in the current fiscal year (FY26). This reflects the strengthening of internal controls and risk management practices by lenders.

The rating agency also flagged the risk that global economic uncertainty could affect corporate capital expenditure, excluding infrastructure, and thus hurt overall loan growth in India. While corporate borrowing has gained momentum, uncertain external conditions may delay private investment-related growth.

S&P noted that India's low exposure to US trade reduces tariff risks, but second-order impacts such as trade redirection to India could impact a few sectors like steel and chemicals. The agency believes underwriting standards for secured retail loans remain healthy, and delinquencies in this segment are manageable. Tightening regulations and stricter guardrails in microfinance are also expected to contain asset quality strains.

Despite these challenges, India's sound growth prospects and falling interest rates are expected to support banks' asset quality. The rating agency has pegged India's GDP growth at 6.5-7.0% annually in the FY26-28 period, driven by infrastructure spending and robust private consumption.