Mumbai, Feb. 13 -- Indian banks turned cautious on personal loans after the regulator's warnings and rising stress in collateral-free advances and microloans, slowing growth in one of their fastest-growing segments. Yet, far from giving up on it, they continue to bet on such lending to grow.

Most lenders, in their third-quarter earnings calls, guided that while growth may have slowed for a quarter or two, a majority of their customers continue to pay on time. They will continue to expand the portfolio in the coming quarters given that the bulk of the exposure is to salaried account holders and overall portfolio quality remains robust.

While the banking sector, including State Bank of India, has seen some slowdown in this segment, the le...