New Delhi, September 2026.

Personal lending in India is undergoing a significant shift. Personal loans, once largely associated with emergencies or financial distress, are increasingly being used as planned financial tools to meet both aspirational and practical needs. This shift is particularly visible among younger consumers and affluent borrowers, who are becoming more comfortable using credit strategically without disrupting long-term investments.

According to Amit Pathak, Business Head – Personal Loans at Kotak Mahindra Bank,“The transformation is being driven by two parallel trends: changing borrower behaviour and the growing use of AI-led underwriting. As customer expectations shift toward faster, seamless and more flexible access to credit, banks are simultaneously investing in smarter risk assessment and fraud detection capabilities”.

A major driver of this transformation is the growing comfort with experience-led borrowing. Younger consumers, especially Gen Z and first-time earners, are increasingly willing to use credit for discretionary spending such as travel, weddings, lifestyle purchases and other milestone experiences. Unlike previous generations, which often viewed debt with caution, younger borrowers see credit as an enabler that helps them align present aspirations with future earning potential.At the same time, the rise in planned borrowing is being accompanied by a stronger culture of responsible credit behaviour, with consumers placing greater emphasis on repayment discipline, maintaining healthy credit scores and borrowing within their means.

What stands out is that this rising credit appetite is not necessarily translating into weaker repayment behaviour. Growing financial literacy, awareness of credit scores and better understanding of repayment discipline are contributing to more responsible borrowing. Borrowers today are more conscious of maintaining healthy credit behaviour and avoiding practices such as excessive loan stacking.

At the same time, banks are transforming how credit is assessed and delivered through AI and machine learning-led underwriting models. As lending journeys become increasingly digital, AI is playing a critical role in enabling faster, more accurate and more secure decision-making.These models are being built and deployed within regulatory frameworks, with human oversight continuing to play an important role in the decision-making process. Banks are not relying solely on AI outputs to make lending decisions. Models are typically tested on smaller cohorts, with results monitored and refined over time before wider deployment. This helps improve the accuracy of underwriting models while also strengthening fraud detection and reducing risks linked to cyber threats or misuse of credentials.

AI is also enhancing credit underwriting by allowing lenders to analyse significantly larger volumes of customer data in shorter timeframes. This enables more granular risk assessment, sharper default prediction and better pricing decisions. Improved risk detection ultimately benefits both banks and borrowers by reducing non-performing assets and supporting more efficient credit delivery.

Another emerging trend is the use of personal credit lines by affluent customers as a liquidity management tool. Instead of liquidating investments during short-term cash requirements, many are using flexible credit products to preserve compounding returns while maintaining access to immediate liquidity. This reflects a broader shift in mindset where credit is increasingly being viewed beyond a sign of financial stress, as a tool for smarter financial planning.