These lenders who serve small businesses have sold unsecured loans, explored such sales, or are securitizing them, the people cited above said on the condition of anonymity. Potential buyers include banks and larger non-bank lenders. The development, which came after a central bank crackdown on the runaway growth in personal, credit card and small business loans, marks a pivot for these lenders and their backers, who had bet on such loans without collateral for growth.
Kinara Capital has started the sale process for its ₹2,200-crore unsecured lending book, three people aware of the matter said.
“We remain open to different liquidity options that could further our commitment to meet our obligations towards our customers, lenders and partners,” a spokesperson of the Bengaluru-based company said in response to a query.
Crunch time
Kinara, which has raised about $117 million equity from investors like British International Investment and US asset manager Nuveen, faces a liquidity crunch, after some lenders appropriated fixed deposits and recalled loans, according to an August report by rating agency Icra. In August, Kinara said it had paused repayments until October as part of a resolution plan agreed with its lenders. Portfolio sale discussions are at a preliminary stage, one of the people cited above said.
Unsecured loans, which are not backed by collateral, are seen as inherently riskier than, say, mortgage or vehicle loans. The red-hot growth in unsecured loans prompted the Reserve Bank of India (RBI) to raise risk weights on consumer credit and bank loans to NBFCs in 2023, and tighten regulations for peer-to-peer platforms over 2023 and 2024. The crackdown squeezed fund flows to the sector, which has since turned to secured loans to protect profitability and sustain growth.
Lendingkart, backed by Temasek-owned Fullerton Financial, is securitizing its unsecured loans, where loans are pooled into a special purpose vehicle (SPV). The SPV issues pass-through certificates (PTCs) to large investors who are then paid from loan repayments.
A company spokesperson denied any distress sale, but said that it continues to securitize loans. “Lendingkart is not selling its unsecured loan portfolio to raise cash. Lendingkart has sufficient liquidity to meet all its obligations… In the normal course of business, Lendingkart continues to undertake securitization transactions,” the spokesperson said.
Lendingkart’s fiscal year 2025 (FY25) annual report spoke of a renewed focus on quality, profitability and capital adequacy, alongside a pivot towards secured lending. Fullerton Financial is investing ₹2,000 crore in Lendingkart to grow its secured lending book, The Economic Times reported in September. The company’s assets fell 31% to ₹5,000 crore at the end of March and further to ₹4,141 crore by 30 June, said a Crisil note on 9 October, as it exited co-lending and shifted to higher-ticket secured loans.
Towards secured
Aye Finance, backed by Google, A91 Partners and British International Investments, is also reducing exposure to unsecured lending. It has raised focus on mortgage loans and increased its conoctotribution to about 15% of its assets in FY25, compared to about 7% in the previous year, a CareEdge Global Ratings report said in May. The report said that in line with its planned strategy, Aye plans to grow its mortgage loan business and gradually shift from a largely unsecured loan book to a diversified portfolio.
The lender has also seen worsening asset quality in the last fiscal, with gross non-performing assets (NPAs) rising to ₹217 crore due to significant write-offs in hypothecation loans, CareEdge said. The company has raised over ₹770 crore since FY20.
Ashv Finance has halted new unsecured business loan originations in December 2024 and has sold most of its assets to Protium Finance, using proceeds to repay liabilities, according to India Ratings.
While larger lenders such as Navi, Moneyview and KreditBee have managed to scale profitably, crossing ₹10,000 crore in assets under management (AUM), smaller fintechs have struggled.
Delinquencies
According to CRIF Highmark data for June 2025, fintech lenders continue to face higher delinquencies, particularly in very small-ticket loans below ₹10,000. In this segment, 4.1% of loans were overdue by 31–90 days and 4.8% by 91–180 days, much higher than 1.7% and 1.8%, respectively, for other NBFCs.
The pivot away from unsecured loans has improved loan quality. Between June 2023 and June 2025, the share of very low-risk borrowers in NBFC-fintechs rose from 20% to 28.9%, while high- and very-high-risk segments fell sharply from 38.4% to 28.9%, reflecting tighter underwriting and better risk controls.
Experts say the surge in portfolio deals is driven by funding constraints, rising bad debt and a need to optimize capital.
“Bank credit growth to NBFCs has slowed down to 3.4% as of August 2025, compared to 11.9% in August 2024. Yet, NBFCs continue to grow, which means they need alternate pools of capital to sustain momentum,” said Ashish Mehrotra, managing director (MD) and chief executive officer (CEO) of Northern Arc, a non-bank lender.
Equity inflows have dried up too. Tracxn data showed that total funding to India’s online personal loans segment peaked at $464 million in 2022, following $426 million in 2021, but plunged to $152 million in 2023 and $89.2 million in 2024. In 2025 so far, the category has seen just $26.4 million in funding. This indicates a steep fall in investor interest since the high-growth phase of 2021 and 2022. The segment has seen cumulative funding over the five-year period totaling $1.47 billion across 166 rounds.
Unlocking capital
“Slower equity inflows and limited bank funding have pushed NBFCs to securitize loans via PTCs, unlocking capital to honour their financial obligations and for new lending, without raising additional equity,” said Bhavin Shah, partner and deals leader at PwC India.
Manish Aggarwal, partner at Deloitte India, said rising capital costs have made “originate-to-sell” models more common among smaller fintechs.
“Demonstrating portfolio quality through successful sales helps attract institutional investors and improve credibility in future funding rounds,” he said.
Shah also added that rising delinquencies, especially in consumer finance and microfinance, have prompted NBFCs to sell stressed or non-performing assets to clean up balance sheets and meet financial covenants.
In case of distressed sell-downs, deals are happening at discounts of up to 30% to book value, depending on borrower mix and recovery track record, said one of the people cited earlier. “There are always buyers at the right price,” one of the sources quoted above said.
However, Aggarwal cautioned that investor appetite remains weak for unsecured portfolios.
“Investor appetite for securitization pools of unsecured loans remains limited due to elevated credit risk and absence of collateral, which heightens loss severity in defaults. Current yield requirements and credit enhancement needs often make transactions uneconomical,” he said.
The cleanup
As NBFCs and fintech lenders look to clean up their books ahead of quarterly results and potential listings, several are selling off their unsecured loan portfolios. “There is an increase in unsecured loan portfolios being sold. One key reason is that in the last few years, there was significant growth in unsecured lending, and in the process, there was some dilution in credit underwriting quality,” said Hari Hara Mishra, CEO of the Association of ARCs in India.
The association’s data shows ARCs paid around ₹770 crore to acquire unsecured retail loans in the June quarter, more than double the ₹263 crore recorded in the same period last year.
Mishra said the pricing paid for unsecured retail loans stood at around 20% of total dues. “Loans with higher period of past dues, say with over three years of vintage, tend to fetch still lower recoveries, since they’re riskier and have no underlying security. Unsecured loans are typically written down to zero after being in doubtful category i.e. NPA over a year. If a lender can recover 20% now, that’s often better than projected cash flows from underlying assets after waiting two or three years for similar or lower recoveries,” he added.
Mishra noted that the trend is likely to continue as lenders prepare for the expected credit loss (ECL) provisioning framework, which is likely to roll out from 1 April 2027. “Under ECL, lenders have to make provisions proactively, rather than waiting for an actual loss. Sale to ARC at an early date helps maintain healthier balance sheets,” he said. While margins on unsecured assets are thinner, Mishra added that “the volume makes it attractive for ARCs,” as they continue to expand in this segment.
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