Hi everyone,

Welcome to the 155th edition of The Pattern, a weekly where we dive into the latest from the world of economy, technology and finance. Let’s get started!

A shift to slowdown

Predicting the future has never been easy. Be it a horoscope or an economic analysis. But that never stopped anyone from checking their horoscope or indulging in a little bit of crystal ball gazing about what the future holds.

“The only function of economic forecasting is to make astrology look respectable,” remarked John Kenneth Galbraith, a career economist.

However, the one prediction that’s more or less set to come true in the coming year is this— a slowdown in credit growth in FY26 .

While India’s credit landscape has only seen booms and bigger booms in the recent few years, this slowdown might be jarring for all participants and even shocking to some of the newer entrants who are yet to see a full economic cycle play out. But let’s focus on what’s happening before getting into the brass tacks.

Why is credit growth slowing?

Indian lenders are seemingly pivoting from unsecured loans, such as personal loans and credit cards, toward secured loans, like home and vehicle loans.

Why? To reduce overall risk.

Unsecured loans have caused a lot of heartache for certain lenders. As delinquencies rise, lenders risk losing money when borrowers default. Secured loans, however, are backed by assets (like homes or cars), providing a safety net for lenders.

The slowdown is also tied to increasing regulatory pressure . The RBI had raised capital requirements for unsecured loans, making them less profitable. The regulatory direction on moving away from unsecured loans is part of the regulator’s job to keep the economic engine from overheating.

Fitch Ratings , a US-based credit rating agency, mentioned in a report, "We expect slower-to-stable loan growth in FY25 and FY26, after 2 consecutive years of mid-teen growth".

What does this mean for lenders?

For lenders, this means a strategic shift. By prioritising secured loans, they can better manage risk with more predictable returns. But this could also mark a pause in easy money for those seeking credit without collateral (or enough credit scores).

On the flip side, fintechs are starting to feel the impact of this shift. As banks cut back on unsecured lending, companies like Paytm, MobiKwik, and PB Fintech’s Paisabazaar have seen a drop in their unsecured loans business.

Paytm reported a 19% decline in the March quarter, going from ₹1,746 crore to ₹1,422 crore. As banks pull back, fintechs now have to quickly adapt to keep up.

Is this shift one for the ages?

These changes show how vulnerable fintechs are, especially those that rely on traditional banks for unsecured loans. As banks pull back, fintechs will need to find new ways to keep their revenue flowing.

While the shift toward secured lending is safer, the question remains: Can this strategy drive long-term growth?

While sectors like housing, vehicles, and gold loans are expected to grow steadily, these areas may not be enough to fully drive credit growth long-term. It's important to remember that India still has a sizeable population of credit underserved citizens and retail credit is one of the leading indicators of expanding consumption and economic growth.

Exploring new horizons

Lenders are likely to shift their focus more on agriculture, MSMEs, and renewable energy—sectors that continue to show resilience and offer stable opportunities. These areas can become key growth drivers for credit expansion in the future.

For example, UCO Bank is aiming for 12–14% credit growth in FY26 while focusing on agricultural, retail and MSME sectors.

Also, lenders can offer smaller, unsecured loans instead of large, high-risk loans to existing customers. This allows for controlled risk management while keeping books in a healthier balance.

What else should lenders focus on?

Apart from focusing on these areas, savvy lenders could:

• Leverage AI-powered tools to analyze data. By using alternative data sources, such as transaction history or social data, banks can make more informed lending decisions, even in the unsecured space.

• Adapt to the changing regulatory landscape by aligning strategies with RBI guidelines, managing liquidity, and innovating with digital tools and securitization.

• Optimise loan-to-deposit ratios to avoid liquidity mismatches, ensuring sustainable funding and reducing reliance on costly borrowings.

• Maintain strong credit discipline and continue cautious underwriting to prevent asset quality deterioration, especially in high-risk segments.

Turning challenges into opportunities

Change is inevitable and that includes the future of lending. While FY26 may present a growth slowdown—the future of the sector is not in question. It also presents an opportunity for lenders to adjust, focusing on safer, more stable products.

Now is the right time for lenders to focus on smart planning, careful underwriting, better risk management, and a touch of innovation. Afterall, a stitch in time saves nine.

That’s all from me this week. As always, leaving a bunch of reading recommendations below.

Reading List:

1. Non-banking lenders opting for overseas funds

2. Indian lenders seek overnight liquidity ops, easier reserve norms from RBI, sources say

3. Unsecured loans: Improved outlook fuels expansion

4. RBI moots 15% cap on banks, NBFCs' investments in AIFs

Thank you for reading. If you liked this edition, forward it to your friends, peers, and colleagues. You can also connect with me on X here and follow FinBox on LinkedIn to always get all updates.

Cheers,

Mayank