India’s Growing Debt Problem

Modi’s India is all about urban skylines, burgeoning consumption, and a near unassailable market, but behind the glossy façade of skyscrapers and malls, Indians are in a debt crisis like never before. Since 2022, India’s household debt has grown nearly seven per cent— from 36 per cent to nearly 43 per cent of the GDP. 

Easy Credit For Consumption

Since 2020, low interest rates and aggressive marketing by banks and fintech companies have made borrowing for consumption easier than ever for Indians. The country’s usage of credit cards jumped 50 per cent since 2022. Personal loans, which were once a small portion of borrowing, are now in the tens of trillions of rupees. Fintech platforms and UPI-enabled instant credit further fuel impulsive lending, stripping the process down to a few taps.

A PwC‑Perfios study shows that almost 39 per cent of household income goes toward EMIs and insurance payments. Meanwhile savings have shrunk to just five per cent of GDP, a four-decade low. 

Indians are borrowing money more than ever, and it’s not for investment. There is a growing mountain of debt that funds consumerism— smartphones, vacations, even festive shopping. Unsecured loans such as credit cards and gold loans have become almost 20 per cent of the GDP, with 2025 seeing a significant surge in its first half. 

While the RBI has tried to tighten its belt, household debt continues to climb. A recent Financial Stability Report showed that unsecured loan grew 20 per cent in the past year.

Consumer credit is showing cracks: retail credit growth slowed from 12 per cent to just 5 per cent in Q4 FY24–25, even after RBI slashed rates.

With growing debt has come growing defaults on unsecured loans. Credit card NPAs reportedly rose from 1.8 per cent to 2.4 per cent, and personal loan defaults spiked from 3.2 per cent to 3.9 per cent year‑on‑year. The RBI has since flagged that borrowers who are paying off both unsecured and housing/vehicle loans are high‑risk, saying if they default in one category they are likely to do so in the other. 

Nearly 50% of sub-prime borrowers used credit for consumption, often without understanding the long-term cost 

The RBI has taken action by increasing risk weights on personal loans and credit cards, and urging banks and NBFCs to shore up capital buffers. Yet banks are still expanding unsecured lending.