Consumers planning to take a personal loan in the coming months could see more lending options as liquidity in India's banking system improves. According to brokerage firm UBS, stronger availability of funds with banks could support faster growth in unsecured credit, including personal loans.

More liquidity essentially gives banks greater capacity to extend credit. However, borrowers should not assume that easier access to loans will automatically result in lower interest rates. The cost of a personal loan depends on several factors, including a borrower's credit profile, the bank's funding costs, competition among lenders and broader monetary conditions.

For borrowers with strong credit scores, stable income and manageable existing debt, increased competition among lenders could potentially lead to more attractive loan offers.

Personal Loan Market Could See Faster Growth

UBS expects unsecured lending in India to enter another period of stronger growth, with personal loans potentially playing an important role.

According to figures cited from the September CIRF report, the outstanding personal loan portfolio in India stands at approximately ₹17 lakh crore, representing year-on-year growth of about 13.8%.

Personal loan growth has also remained visible across several large banks.

During the first quarter of FY 2026-27, the average growth in personal loan portfolios across five major banks was reportedly around 10%.

Among the banks mentioned in the report, SBI recorded growth of approximately 15%, while ICICI Bank registered 12.9%. Axis Bank's personal loan portfolio grew by around 6%, while Kotak Mahindra Bank recorded growth of approximately 5%.

These figures indicate that personal lending has continued to expand, although growth rates differ significantly between individual banks.

Could Getting a Personal Loan Become Easier?

Higher liquidity can increase the amount of money banks have available for lending. UBS believes banks could deploy part of these additional funds into lending segments such as personal loans over the coming months.

That does not mean every loan application will automatically be approved.

Personal loans are generally unsecured, meaning borrowers are not required to pledge assets such as property or gold as collateral. As a result, banks closely evaluate an applicant's ability and willingness to repay before approving a loan.

Customers with a healthy credit history, reliable income and relatively low existing debt obligations may be in a stronger position if lenders increase their focus on personal loans.

Banks may also use pre-approved offers and targeted lending programmes to attract eligible customers.

Will Personal Loan Interest Rates Also Come Down?

This is where borrowers need to distinguish between greater loan availability and cheaper borrowing.

The UBS assessment primarily points to additional banking-system liquidity and the possibility of stronger personal loan growth. It does not mean that personal loan interest rates will necessarily decline.

If banks compete more aggressively for high-quality borrowers, some customers could receive lower rates, reduced processing charges or other promotional offers.

However, the actual interest rate offered to an individual borrower will continue to depend on the lender's policies and the applicant's risk profile.

Credit score, monthly income, employment stability, existing EMIs, repayment history and loan amount can all influence the final offer.

Broader factors such as RBI monetary policy and banks' cost of funds can also affect lending rates.

FCNR-B Inflows Could Support Banking Liquidity

The report attributes a significant part of the expected increase in banking liquidity to inflows associated with the FCNR-B deposit route.

FCNR-B, or Foreign Currency Non-Resident (Bank) deposits, allows eligible non-resident Indians to maintain fixed deposits in specified foreign currencies. The deposits and interest are denominated in foreign currency, limiting the depositor's direct exposure to movements in the rupee for the deposit itself.

According to the figures cited in the report, inflows through the relevant scheme reached approximately $133 billion by the time it closed on August 31.

UBS estimates that this could generate approximately ₹12-13 lakh crore of additional liquidity in the banking system.

Banks could eventually deploy part of these funds toward loans. However, the impact may not be immediate. Banking officials cited in the report indicated that converting additional liquidity into lending growth could take around three to four months.

What Does This Mean for Borrowers?

For consumers considering a personal loan during the coming festive months, the developing liquidity situation could potentially mean a wider range of offers.

Borrowers with stronger credit profiles may benefit the most if banks increase lending activity and compete for lower-risk customers.

But consumers should avoid assuming that easier availability automatically means a loan has become affordable.

For example, a lender may approve a higher loan amount while still charging a relatively high interest rate. Because personal loans are unsecured, their rates can be considerably higher than some secured forms of borrowing.

Borrowers should compare the annual interest rate, processing fee, prepayment or foreclosure conditions, late-payment charges and total repayment amount before accepting an offer.

Credit Profile Will Remain Important

Even if banks have more money available for lending, credit assessment is unlikely to disappear.

A strong credit score and clean repayment history can help a borrower qualify for more competitive offers. At the same time, having too many existing loans or high monthly EMI commitments could reduce eligibility.

Consumers should also be cautious about borrowing simply because a pre-approved loan appears in a banking app. A personal loan creates a fixed repayment obligation, and missed EMIs can affect both finances and credit history.

The key takeaway is that increased banking liquidity could support stronger personal loan growth and potentially improve access to credit for eligible customers. But whether borrowing actually becomes cheaper will depend on competition among banks, RBI policy, funding costs and each customer's individual credit risk.

Disclaimer: This article is for general informational purposes only. Loan availability, approval conditions and interest rates vary between lenders and borrowers. Consumers should compare offers carefully and seek professional financial guidance where necessary before taking on new debt.