The Indian banking sector is currently facing a significant uptick in personal loan defaults, most notably in small-ticket loans and rural regions. According to data compiled by the Fintech Association for Consumer Empowerment (FACE), loans overdue for more than 90 days climbed to 3.6% by March 2025. This is the highest in six quarters.
Further, the stress is particularly acute among borrowers under the age of 25 and in tier-3 and rural areas, highlighting the challenges faced by young and new-to-credit consumers as financial obligations intensify.
Private banks saw bad loan ratios edge up in the April–June 2025 quarter, with Kotak Mahindra Bank’s NPA rising to 1.48% and similar stress across the sector. Banks are now focusing on tightening lending, especially for unsecured loans, making it riskier for borrowers.
Therefore, in such an environment, missing out on an EMI can hurt creditworthiness and future loan access. Let us hence discuss how a borrower can navigate the current financial climate after defaulting on a personal loan.
5 key things to do after you have defaulted on a personal loan EMI
After defaulting, prompt action is required to limit damage to both your credit profile and borrower integrity. To ensure the same, consider these essential measures:
Negotiation over litigation
The Reserve Bank of India encourages amicable settlement of such recovery processes. It mandates fair practices from lenders during the settlement process. That is why early negotiation can sometimes even result in loan restructuring or one-time settlements.
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