Unsecured personal loans below Rs 1 lakh now make up more than two-thirds of loans extended by digital lending startups, according to data compiled by credit bureau Experian till December FY26.
The share of such loans, at a time when bad loans in digital lenders’ portfolios remain high, has gone up from 55% back in FY23. Loans between Rs 1 lakh and Rs 5 lakh have fallen from 35% to 27%, while those above Rs 5 lakh have slipped from 10% to 6%, said the report, titled Beyond Borrowing: AI's New Language of Risk in India's Fintech Outlook.
Speed explains the shift. "Digital lending primarily happens in small ticket-size loans due to faster turnaround times," said Rajit Bhattacharya, cofounder of DataSutram, a fraud-detection startup working with banks and fintechs based in Mumbai.
Industry insiders point out that given the small-ticket size of such loans, the disbursals do not impact the overall profitability of the lending company. Instead it makes sense to have larger assets under management, which can eventually help improve valuations.
“The total amount of money lent out in such loans remains low, limiting returns despite better credit quality. Big-ticket loans, by contrast, build larger loan books and generate better returns,” said the founder of a consumer-focused digital lending startup, on condition of anonymity.
Consumer durables account for a major part of such loans, the founder said. "Many borrowers use them to buy televisions, washing machines and mobile phones. Mom-and-pop shopkeepers also tap these loans as working capital. A shopkeeper needing Rs 50,000 for inventory gets approval in minutes, not days," he added.
Cross-selling drives growth, Bhattacharya said. The same borrower takes out loans multiple times, repays quickly and returns for more, creating a high-velocity lending model.
Personal loans now constitute nearly half of both the disbursement value and number of disbursements in unsecured lending, according to the report. "With seamless onboarding, faster approval cycles, and flexible product constructs, personal loans remain the preferred credit product across age groups and income segments," the report said.
Defaults declining
Late payments, those due by at least 30 days, fell to 5.3% in December 2025, down from 7.8% a year earlier. That marks a turnaround after bad loans had climbed from 6.5% in late 2023 to peak at 7.8% in December 2024.
The improvement runs across every loan size, but the gains are most striking in smaller loans. Loans below Rs 50,000, which historically see the most defaults, improved sharply, with late payments dropping from 13.4% to 9.6% over the past year. Mid-sized loans between Rs 50,000 and Rs 1 lakh fell from 5.7% to 3.9%. Even loans above Rs 1 lakh, already the safest category, tightened further from 4.8% to 3.3%.
Technology has helped drive the improvement. Analytics-driven credit checks and frictionless mobile onboarding let fintechs assess risk cheaply and quickly, says experts.
The share of such loans, at a time when bad loans in digital lenders’ portfolios remain high, has gone up from 55% back in FY23. Loans between Rs 1 lakh and Rs 5 lakh have fallen from 35% to 27%, while those above Rs 5 lakh have slipped from 10% to 6%, said the report, titled Beyond Borrowing: AI's New Language of Risk in India's Fintech Outlook.
Speed explains the shift. "Digital lending primarily happens in small ticket-size loans due to faster turnaround times," said Rajit Bhattacharya, cofounder of DataSutram, a fraud-detection startup working with banks and fintechs based in Mumbai.
Industry insiders point out that given the small-ticket size of such loans, the disbursals do not impact the overall profitability of the lending company. Instead it makes sense to have larger assets under management, which can eventually help improve valuations.
“The total amount of money lent out in such loans remains low, limiting returns despite better credit quality. Big-ticket loans, by contrast, build larger loan books and generate better returns,” said the founder of a consumer-focused digital lending startup, on condition of anonymity.
Consumer durables account for a major part of such loans, the founder said. "Many borrowers use them to buy televisions, washing machines and mobile phones. Mom-and-pop shopkeepers also tap these loans as working capital. A shopkeeper needing Rs 50,000 for inventory gets approval in minutes, not days," he added.
Cross-selling drives growth, Bhattacharya said. The same borrower takes out loans multiple times, repays quickly and returns for more, creating a high-velocity lending model.
Personal loans now constitute nearly half of both the disbursement value and number of disbursements in unsecured lending, according to the report. "With seamless onboarding, faster approval cycles, and flexible product constructs, personal loans remain the preferred credit product across age groups and income segments," the report said.
Defaults declining
Late payments, those due by at least 30 days, fell to 5.3% in December 2025, down from 7.8% a year earlier. That marks a turnaround after bad loans had climbed from 6.5% in late 2023 to peak at 7.8% in December 2024.
The improvement runs across every loan size, but the gains are most striking in smaller loans. Loans below Rs 50,000, which historically see the most defaults, improved sharply, with late payments dropping from 13.4% to 9.6% over the past year. Mid-sized loans between Rs 50,000 and Rs 1 lakh fell from 5.7% to 3.9%. Even loans above Rs 1 lakh, already the safest category, tightened further from 4.8% to 3.3%.
Technology has helped drive the improvement. Analytics-driven credit checks and frictionless mobile onboarding let fintechs assess risk cheaply and quickly, says experts.