Formal credit access in India has more than doubled since 2017, reaching 74% of the eligible population by March 2026. While retail credit portfolios grew 19.2% to ₹179 lakh crore, the rapid entry of first-time borrowers into segments like consumer durables and microfinance is raising concerns regarding asset quality and repayment discipline.
India’s formal financial system has seen a major transformation, with credit penetration rising to 74% of the eligible population by March 2026. This is a significant jump from 35% in March 2017, indicating that millions of Indians have moved from informal borrowing to the formal banking system over the last nine years. The country's retail credit portfolio reached ₹179 lakh crore in the June 2026 quarter, marking a 19.2% year-on-year growth.
This expansion is largely driven by a new wave of borrowers entering the system. Consumer durable loans have become the primary entry point, accounting for nearly 46% of first-time borrower originations in the first quarter of the 2027 financial year. Easy access to point-of-sale financing, digital lending platforms, and retailer-linked credit has made it simpler for customers with little or no credit history to secure smaller loans. Gold loans and personal loans follow as the next most popular pathways for these new-to-credit customers.
Growth is also spreading rapidly beyond India’s major urban hubs. Lenders are increasingly tapping into tier-2 and tier-3 markets, where consumer durable and two-wheeler loan penetration has shown steady improvement. This geographic diversification allows banks and non-banking financial companies (NBFCs) to expand their addressable market significantly.
However, this rapid growth brings notable challenges for lenders. The influx of new borrowers, particularly in the unsecured retail segment and microfinance, requires careful monitoring. Financial data and recent regulatory commentary suggest that rising stress in unsecured personal loans and micro-credit portfolios is becoming a concern. Lenders are facing the difficult task of maintaining growth while ensuring that new customers—who have limited borrowing histories—can consistently repay their debts.
Another point of caution for the sector is the gap between credit and deposit growth. While credit demand remains strong, the pressure on deposit mobilization continues to impact the cost of funds for many financial institutions. This gap, combined with the potential for higher missed repayments, puts pressure on net interest margins. Investors and market observers are watching whether lenders can maintain strict underwriting standards as they push deeper into these new customer segments.
Ultimately, the sustainability of this credit expansion will depend on asset quality. If lenders can successfully balance the drive for inclusion with disciplined risk management, the trend may support long-term growth. If not, the rising share of first-time borrowers could lead to higher defaults and volatility in financial earnings in the coming quarters.