Growth of the loan from consumers in India Bottom, expects faster recovery in the midst of credit costs moderation: Morgan Stanley

The growth of consumer loans in India seems to have been sustained and a faster recovery is expected with the moderation of credit costs in the coming quarters, a recent report noted the global financial service provider Morgan Stanley.

The report emphasized that the unsecured growth of consumer loans, which had seen robust expansion in previous years, has been greatly delayed in the past two years. The growth of the year after year fell from 31 percent in the first quarter of FY23 to only 8 percent in the fourth quarter of FY25, which marked a considerable moderation of credit activity.

Morgan Stanley stated: “The growth of the loan seems to be on bottomed; we expect faster recovery of loan growth and degree of credit costs”.

The report data also showed that delinquencies at an early stage, measured by Portfolio at Risk (PAR) for 31-90 days, deteriorated in March 2025 on most credit giver categories, except for private banks. Banks of the public sector recorded an increase in their par 31-90 percentage to 2.61 percent to 2.61 percent in March 2025, compared to 2.45 percent in March 2023. Filing financial companies (NBFCs) also saw an increase of early delinquencies, with the ratio in the same period.

Private banks, on the other hand, improved their performance, whereby the ratio fell to 1.11 percent of 1.26 percent for the same period. On the payment side, growth was considerably delayed in FY25. The report attributed this delay to the reserve Bank of India to increase the risk weights for consumer credit, together with increased risk reception in the unclocked segment and the rising delinquence rates.

The report suggested that although unsecured growth of consumer loans is likely to be issued, a gradual recovery can see in the coming quarters that is supported by a better credit costs management and a more cautious credit strategy of financial institutions. However, it also warned that the rise of both early and late delinquencies emphasizes the need for continuous vigilance about the quality of the assets in this segment.

In general, the findings in the report pointed to a consolidation phase in the uncovered consumer loans, since lenders balance growth ambitions with the imperative to maintain power quality.

Published on August 12, 2025