India’s household debt story: Walk through an Indian city or town today and you will find that aspiration, especially expressed in consumerism, is spoken in instalments. Apartments are bought with twenty-year mortgages (and prepaid much earlier), two-wheelers with bundled insurance are financed on the spot, and even a pair of headphones might be paid for in three clicks of “no-cost EMI.”
For observers, it might be tempting to look at these patterns and declare that a debt-fuelled consumption bubble is forming. Rising household leverage, mushrooming credit card bills, and housing EMIs stretching over decades make for ominous headlines. Yet the story, when you place the data against the context, is far more measured. The question is not whether Indians are living beyond their means, but whether the Indian credit system is maturing faster than our anxieties, and shifts in consumer behaviour across strata of Indian demographics.
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Household debt in India
At the macro level, India’s household debt is about 42 per cent of GDP — higher than pre-pandemic but far below the emerging-market average of 70–80 per cent, and a fraction of the 100 per cent-plus levels that preceded crises in advanced economies. Morgan Stanley, in a July 2024 note, argued that this level of household leverage is “manageable” and entirely consistent with 6–6.5 per cent GDP growth over the next three to five years.
The Reserve Bank of India’s June 2025 Financial Stability Report echoed that sense of comfort: gross NPAs in banks are down to 2.3 per cent, a multi-decade low, with stress tests predicting only modest increases even under adverse conditions. The overall system is well capitalised, conservatively provisioned, and anchored by stable deposit funding. India’s leverage numbers may look striking against its own past, but they remain modest by international standards.
Indian credit system: Composition and quality
Composition matters as much as scale. The SBI Research report this year found that nearly half of all household debt in India is tied to asset creation – housing, vehicles, small businesses, and education. Only about 10 per cent of household debt is unsecured personal loans and credit card balances, despite their fast growth. Crucially, two-thirds of Indian borrowers fall into prime and above credit categories, suggesting that the expansion of credit has not yet come at the cost of a massive slide in quality.
Much of what looks like a surge in retail borrowing is also the result of financial inclusion and formalisation. More Indians now borrow through banks, NBFCs, and fintechs rather than from family or moneylenders. The Jan Dhan Yojana, Aadhaar-enabled KYC, UPI rails, and bureau reporting have widened access and brought transparency. What for one generation was informal borrowing has become a trackable EMI, priced and regulated by the system.
If there is one weakness in India’s credit landscape, it is not recklessness but sameness. Walk across the lending ecosystem – from large public banks to nimble NBFCs and digital-first fintechs – and what strikes you is how little true differentiation exists. Most institutions push near-identical products: the same floating-rate home loans, the same short-tenor personal loans, the same credit cards packaged with reward points.
Competitive strategy is thin, innovation is often cosmetic, and margins are fought over distribution rather than design. This convergence has its upside – households are protected from exotic, high-risk products that have undone other markets – but it also reflects a financial sector still learning to compete on depth, segmentation and long-term customer relationships rather than on volume and speed alone.
The result is that even the stress pockets we see today are, in part, the outcome of this copycat behaviour. Smaller NBFCs and new-age lenders often mimic the playbooks of larger banks – chasing unsecured personal loans, pushing easy credit cards, or underwriting housing at the same terms — without the buffers, consumer insights, or balance-sheet strength that the majors enjoy. Instead of designing products around their natural advantage – deeper access to niche customer bases, local credit knowledge, or more personalised servicing – they end up importing risks that are disproportionate to their scale. It is a fixation with following the herd, rather than asking how to lend differently, that creates bubbles in micro-segments.
Financial stability and regulatory guardrails
The good news is that India’s regulatory framework and digital infrastructure give ample room for lenders to break this cycle, if they choose to compete on intelligence and suitability rather than imitation.
That does not mean there are no vulnerabilities. In urban middle-class households, EMIs for housing, cars, and education sometimes consume up to 50 per cent of monthly salaries. As incomes stagnate in real terms and education and healthcare costs escalate, the sense of living on the edge has deepened. Self-employed households and those in the informal economy are more exposed, often carrying higher debt-to-income ratios than salaried borrowers.
Credit card debt, while still small as a share of GDP, has been growing at 30 per cent year-on-year, fuelled by consumption and convenience, and leaving some borrowers vulnerable to shocks. These are real social stresses, and they explain why headlines resonate so strongly.
Yet what distinguishes India today from economies that slid into debt crises is the presence of guardrails and responsive regulation. The RBI has not shied away from using macro-prudential tools. In late 2023, it raised risk weights on unsecured consumer credit and cards by 25 percentage points, cooling the most exuberant segments. In early 2025, it fine-tuned those measures to avoid suffocating microfinance and small-ticket productive lending, restoring a balance between caution and inclusion.
Lenders too have begun tightening credit-score cut-offs, pruning limits, and steering towards collateralised products. TransUnion CIBIL’s March 2025 data shows that 90-day delinquencies on cards are stable at about 2 per cent, and personal loan defaults have eased quarter-on-quarter. Growth in new originations has slowed sharply as underwriting tightened. This is precisely what one would want to see when credit appetite gets frothy: moderation, not meltdown.
Housing deserves its own focus. Mortgages remain the largest component of retail credit, and they are mostly floating-rate and long-tenor, which makes households sensitive to repo hikes. But here too buffers exist. Loan-to-value ratios are conservative – up to 90 per cent only for loans below ₹30 lakh, otherwise capped at 75–80 per cent.
Mortgage delinquencies are among the lowest across loan types, supported both by cautious underwriting and by the cultural priority Indian families place on keeping their homes. The mid-2025 policy rate cuts will gradually ease EMI burdens, since most loans are linked to external benchmarks. For a system where housing is both an emotional anchor and a financial obligation, this mix of discipline and relief matters.
Household vulnerabilities and EMI pressures
It is important to distinguish between pockets of household stress and systemic fragility. India has the former, but not the latter. A crisis requires one or more of three conditions: leverage so high that deleveraging crushes growth; bad assets so large that they erode bank capital; or a funding shock that freezes credit. India today exhibits none of these.
Household leverage is moderate by global norms. Bank capital and provisioning are robust. And retail funding remains sticky. What exists instead is a structural transition: a young, urbanising nation shifting from cash conservatism to formal credit, using EMIs as a bridge between present income and future aspiration.
This does not mean complacency. Three risks deserve close watch. First, a subset of younger borrowers who stacked multiple small loans in 2022–23 may face repayment difficulty if job creation falters. Second, parts of the NBFC and microfinance sector, where competition drove down risk pricing, could see stress if liquidity tightens. Third, housing bubbles in select micro-markets may leave new buyers vulnerable to price corrections.
India’s household debt story is, in truth, a development story. A young country is front-loading consumption of housing, mobility, healthcare, and education, confident that its incomes will rise. The debt looks large relative to India’s past, but modest compared to peers. More importantly, it is occurring in a system with strong regulatory guardrails, healthier banks, and better data infrastructure than ever before.
So, are Indians living beyond their means? At the household level, many feel stretched. But at the system level, India is living well within its means. If India continues to expand formal employment and sharpen its credit guardrails, this leverage will be less a threat to stability and more a signal of a society placing its future confidently, and carefully, on its balance sheet.