Key Points

The report highlighted that stronger growth is expected in unsecured retail loans, which currently account for about 10 per cent of the system credit.

It stated, "Loan growth to improve led by stabilising asset quality and push from government/RBI".

The improvement in asset quality is seen as a key driver for this trend. Credit expansion also looks favourable amid the RBI's policy easing, enhanced liquidity in the system, and tax relief measures.

India's retail lending ecosystem is showing signs of recovery across key consumption-linked segments. Personal loans have recorded slight improvements in the 31-90 days past due (DPD) category across lenders, while early delinquencies in credit cards, in the 1-30 DPD bucket, declined by 120 basis points year-on-year and 20 basis points quarter-on-quarter.

At the same time, asset quality in small business loans remained stable on a yearly basis.

However, certain stress pockets are still visible in small-ticket loans originated by non-banking financial companies (NBFCs) and small finance banks (SFBs).

In the microfinance segment, the portfolio contracted by 17 per cent year-on-year.

The report said this segment continues to be in a recalibration phase, with the focus on risk management and portfolio stability instead of aggressive growth. Stress in the microfinance space, though showing improvement, remains elevated.

Looking ahead, the report expects growth in the unsecured retail segment, accounting for around 10 per cent of total system credit, to gain pace in line with the gradual improvement in asset quality.

The report added that the medium-term outlook for credit growth remains positive, supported by a combination of enabling factors, including reductions in RBI's repo rate and cash reserve ratio (CRR), improving liquidity dynamics, and relief measures on direct and indirect taxes.

Overall, Nomura projects system credit growth to improve to 12 per cent year-on-year by FY26F.

- ANI