The Reserve Bank of India on 20 February 2026 issued revised guidelines for unsecured personal lending that will make it harder for borrowers with low incomes or poor credit histories to access quick personal loans from banks and NBFCs. The circular, effective from 1 June 2026, is aimed at curbing the rapid build-up of unsecured retail credit that the RBI has flagged as a systemic concern since late 2023.
Key Changes in the New Framework
The most significant change is the increase in risk weight on unsecured consumer credit from 125% to 150% for banks and from 100% to 125% for NBFCs. This means banks must set aside more capital for every personal loan they disburse, which directly increases their cost of lending and will eventually be passed on to borrowers through higher interest rates or stricter eligibility criteria.
Additionally, the RBI has mandated that banks verify a minimum gross annual income of Rs 3 lakh for personal loans above Rs 50,000, up from the earlier threshold of Rs 2 lakh. For loans above Rs 5 lakh, the income threshold rises to Rs 6 lakh with documented proof through ITR or Form 16. This effectively shuts the door on a segment of the informal economy that had been accessing credit through fintech platforms with minimal documentation.
Why the RBI Acted Now
The RBI's Financial Stability Report from January 2026 highlighted that unsecured personal loans grew at 23% year-on-year in FY25, far outpacing the overall credit growth of 14%. More concerning, the delinquency rate for personal loans in the Rs 50,000 to Rs 5 lakh bracket had risen to 5.2%, up from 3.8% a year earlier. The central bank noted that a significant portion of this stress was concentrated in digital lending through fintech-NBFC partnerships, where underwriting standards had loosened considerably.
Governor Malhotra, in his accompanying statement, emphasised that the measures were preventive rather than reactive. The intent is not to curtail credit access entirely but to ensure that unsecured lending grows at a sustainable pace with adequate risk assessment, particularly for borrowers in the overleveraged segment carrying three or more active unsecured loans.
Impact on Borrowers
Existing personal loan holders will not be affected — the new norms apply only to fresh sanctions from 1 June 2026 onward. However, borrowers looking to take new personal loans should expect the following changes. Interest rates on personal loans from banks may rise by 25-50 bps as the higher capital charge gets priced in. Processing times may increase as income verification becomes more rigorous. Some fintech-led instant loan products may be restructured or withdrawn, as the underlying NBFCs adjust to higher capital requirements.
Borrowers who rely on personal loans for short-term needs should explore alternatives. A loan against fixed deposits offers rates 1-2% above the FD rate, typically in the 7.5-8.5% range, compared to personal loan rates of 10-16%. Gold loans from banks are available at 8-10% with minimal documentation. These secured alternatives remain unaffected by the new norms and offer significantly cheaper credit.
What This Means for the Broader Credit Market
The tightening is expected to slow personal loan growth from 23% to around 14-16% over the next 12 months. Banks will redirect their retail lending focus towards secured products — home loans, car loans, and loans against securities — where risk weights are lower and asset quality has been historically stronger. For the economy, this is a net positive: it reduces the probability of a retail credit bubble while keeping productive secured credit flowing.
Source
RBI Circular DOR.CRE.REC.No.2026/13.03.000/42; RBI Financial Stability Report, January 2026