The Unprecedented Surge in Credit
Recent data from the Reserve Bank of India confirms a significant uptick in the personal loans segment, which expanded by 15.8% by the end of June 2026. This isn't just a statistic; it represents a fundamental shift in how Indians are borrowing. The rise
of fintech platforms and digital lending apps has made credit more accessible than ever, allowing individuals to secure funds for everything from consumer goods and travel to medical emergencies, often within minutes. This democratisation of credit, reaching younger borrowers and those in non-metro regions, has been a key driver of financial inclusion, bringing more people into the formal credit system. However, this high-speed, high-volume environment also brings potential risks to the forefront.
The Allure and Pitfalls of 'Instant Loans'
The promise of 'one-click' or 'instant' loans is incredibly tempting. For many, it removes the bureaucratic hurdles and long waiting periods traditionally associated with borrowing from banks. This convenience, however, can mask underlying dangers. The emphasis on quick approval often means that the crucial process of due diligence can be streamlined to a fault. When lenders compete on the basis of disbursement speed, the focus can shift away from a thorough analysis of a borrower's complete financial picture. This creates a scenario where individuals might be approved for loans they cannot realistically afford to repay, potentially leading them into a cycle of debt. Unsecured personal loans, by their nature, carry higher risks for lenders, which often translates to higher interest rates and fees for borrowers.
Understanding True Repayment Capacity
This is where the concept of 'repayment capacity' becomes vital. It is a far more nuanced metric than a simple credit score or stated income. True repayment capacity is the amount of disposable income a person has left after meeting all their essential expenses and existing debt obligations, including other EMIs, rent, and daily living costs. It answers the fundamental question: can this borrower comfortably handle a new loan payment without undue financial strain? A lender focused on repayment capacity will look at an individual’s entire financial ecosystem—multiple bank accounts, other loans, and spending habits—to build a realistic picture of their ability to service new debt, rather than just confirming if they meet a minimum income threshold.
Why Lenders and Borrowers Must Prioritise Prudence
Ignoring repayment capacity in favour of rapid loan approvals poses a systemic risk. For borrowers, it can lead to a debt trap, where taking new loans to pay off old ones results in a downward financial spiral and a damaged credit history. For the financial system, a widespread relaxation of lending standards could lead to a future increase in non-performing assets (NPAs), which are loans that have gone into default. While current growth is robust, financial regulators have previously flagged the rapid expansion of unsecured lending as a potential area of concern, even increasing risk weights to encourage more cautious lending practices. The responsibility is shared: lenders must deploy their sophisticated data analytics not just for speed but for deeper, more responsible credit assessment, while borrowers must honestly evaluate their own budgets before taking on new debt.
