In the fiscal year 2026, Small Finance Banks (SFBs) in India have made a notable shift towards secured lending, particularly gold loans, to enhance their asset quality amid rising bad loans in the microfinance sector. The bad-loan ratio from unsecured microfinance remains elevated, prompting SFBs to pivot towards gold loans, which have shown rapid growth over the past two years. For instance, ESAF Small Finance Bank reported a 55% year-on-year increase in its gold loan portfolio, reaching ₹8,858 crore, which now constitutes 39.5% of its total portfolio, surpassing microloans. The Reserve Bank of India (RBI) has been advocating for greater diversification in SFBs' lending practices to reduce credit risks. As a result, Ujjivan Small Finance Bank has adjusted its secured product mix to 49.4% and plans to reapply for universal bank status once it demonstrates a more diversified loan book. In contrast, the overall microfinance portfolio for SFBs has decreased to ₹51,800 crore, reflecting a broader trend of contraction in unsecured lending as larger private banks and non-bank lenders continue to expand their micro loan offerings.