India's unsecured credit market is on the cusp of a structural shift, with personal loans set to displace gold loans as the fastest-growing lending segment, according to a report by UBS Global Research. The brokerage has termed the development the 'beginning of an unsecured upcycle', as personal lending rebounds after a two-year slowdown triggered by regulatory tightening and elevated borrower leverage.

Gold Loan Boom Begins to Moderate

Gold loans surged roughly 50 per cent year-on-year in FY26, reaching approximately ₹18.6 lakh crore and pushing the segment's share of GDP from 1 per cent in FY19 to 5 per cent — a five-fold rise in under a decade. The rally was largely fuelled by elevated gold prices, which boosted loan-to-value ratios and made gold-backed borrowing an attractive option for retail customers. However, as gold prices stabilise, this key tailwind is fading, according to the UBS report.

Non-banking financial companies (NBFCs) capitalised aggressively on the gold lending boom, growing their share of the segment more than six-fold since FY18 — from 3 per cent to 20 per cent by August 2026. The brokerage forecasts this pace of market-share gain to moderate as the underlying growth driver dissipates.

Personal Loans Stage a Comeback

Personal loan growth has accelerated sharply, clocking roughly 30 per cent year-on-year for NBFCs and 9 per cent for banks through August 2026 — the fastest pace recorded by both categories in two years. The rebound follows a period of deliberate regulatory restraint, during which the Reserve Bank of India (RBI) had signalled concerns over overleveraged retail borrowers and unsecured credit quality.

Notably, credit quality in the personal loans segment has improved materially. 30-day delinquencies dropped from 3.5 per cent in June 2024 to 1.8 per cent in August 2026, suggesting that the earlier stress in the segment has been largely absorbed. This comes amid broader stabilisation in household balance sheets and lenders adopting stricter underwriting norms over the past two years.

Gold Loan Asset Quality Under Pressure

In contrast, asset quality in the gold loans segment has deteriorated. Gold loan delinquencies rose from 0.7 per cent in March 2026 to 2.6 per cent in August 2026, according to the UBS report. This divergence in credit quality trends reinforces the case for a rotation in lending momentum from gold-backed to unsecured personal credit.

Rate Outlook and What It Means for Borrowers

UBS Global Research does not expect the rate environment to meaningfully disrupt the personal loan upcycle. The brokerage forecasts a shallower 50 basis point hiking cycle by the end of calendar year 2026 — significantly less aggressive than the 100 basis points priced in by the derivatives market. A more modest rate trajectory would help sustain credit demand and keep borrowing costs manageable for retail customers.

With gold price momentum easing, delinquencies in personal loans at a two-year low, and NBFC growth accelerating, the stage appears set for unsecured personal lending to reclaim its position at the top of the credit growth table.