India shifts from savings to credit-driven consumption, as easy retail loans push household debt higher
Household finances in India are shifting from savings-led stability to credit-driven consumption. With easier access to retail loans, household debt has risen steadily in recent years, even as savings have shown volatility. According to the Reserve Bank of India, household debt stood at about 32 pc of GDP in 2015-16, increasing to around 34 pc in 2016-17 and 2017-18, and further to about 35 pc in 2018-19.
In a clear sign of rising concern, the Reserve Bank of India in November 2023 tightened rules on unsecured lending by increasing risk weights on consumer loans given by banks and non-banking financial companies by 25 percentage points, and on credit card dues by a similar amount. This means lenders now have to set aside more money as a safety buffer for these loans, making such lending costlier and aiming to slow the rapid growth of unsecured credit and reduce risks to financial stability.
The ratio remained broadly stable at around 35-36 pc during 2019-20 and 2020-21, before beginning to rise in the post-pandemic period. Household debt increased to about 36.7 pc of GDP in 2021-22 and further to 37.6 pc in 2022-23.
The pace of increase accelerated thereafter. Household debt moved closer to 39 pc during 2023-24 and rose to 41.3 pc of GDP by March 2025, marking a clear upward shift compared to the relatively stable trend seen in the previous decade.
In contrast, net household financial savings have not followed the same trajectory. RBI data shows that savings were around 7-8 pc of GDP during the late 2010s, before declining sharply to about 5 pc in 2022-23. While there has been some recovery to around 7.6 pc in 2024-25, savings remain uneven compared to earlier levels.
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Taken together, RBI data indicates that while household debt increased gradually between 2015 and 2020, the rise has been sharper in the years after the pandemic. At the same time, the relatively weaker recovery in savings highlights a growing imbalance in household finances, with borrowing rising faster than financial buffers.
This change is not just about how much households are borrowing, but why they are borrowing. According to the Reserve Bank of India Financial Stability Report, non-housing retail loans accounted for about 54.9 pc of total household debt in March 2025, rising further to 55.3 pc by September 2025. This includes personal loans, credit card dues and other short-term credit, indicating a clear tilt toward consumption-led borrowing rather than asset-building.
Banks and non-banking financial companies have played a key role in this shift. With digital lending platforms, instant approvals and wider financial inclusion, access to small-ticket loans has become easier than ever. As a result, borrowing is increasingly financing optional spending such as electronics, travel, education and lifestyle consumption.
“Over the past two to three years, we have seen a clear shift in the nature of retail lending. Earlier, most borrowers approached us for housing or asset-backed loans. Today, a large share of applications is for personal loans, credit cards or short-term consumption needs,” Rakesh Mendiratta, a Consumer Loan Officer at Bank of India, a public sector bank, tells Media India Group.
The shift is particularly visible among younger borrowers, who are entering the formal credit system earlier than previous generations. With rising aspirations, steady incomes and easy access to digital lending platforms, many young consumers are using credit not just for emergencies or big purchases, but as a regular tool to manage lifestyle expenses.
“Digital onboarding and pre-approved offers have made credit much more accessible, especially for younger customers. We are seeing a growing share of first-time borrowers in their 20s and early 30s, many of whom are using credit cards and small personal loans for lifestyle and discretionary spending,” says Mendiratta.
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“While repayment behaviour remains stable overall, the concern is that many of these borrowers are taking multiple small loans across platforms without fully assessing their repayment capacity, which can increase financial stress over time,” Mendiratta adds.
Industry data reinforces this trend. According to the Reserve Bank of India, credit card outstanding balances have been growing at over 20 pc year-on-year through much of 2023-2025, while personal loans have also expanded at a similar pace, making them among the fastest-growing segments in retail credit. In contrast, housing loans have grown at a relatively moderate pace of around 12-14 pc, highlighting the shift toward short-term consumption borrowing.
Savings trends reinforce this shift. Net household financial savings, which fell sharply to around 5 pc of GDP in 2022-23 amid post-pandemic consumption, have only partially recovered. By 2024-25, savings improved to about 7.6 pc of GDP, but still remain below earlier highs seen before the pandemic.
The RBI has flagged concerns about the rapid growth of unsecured lending, particularly among lower and middle income households. These borrowers are more vulnerable to income disruptions, interest rate changes and economic shocks.
“Unsecured loans are easier to access but also riskier. If income flows are disrupted, repayment becomes difficult very quickly because there is no underlying asset backing the loan,” he adds.
For many consumers, however, easy access to credit has become part of everyday financial planning.
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“I took a personal loan last year to cover travel and some home-related expenses. Earlier, I would have waited and saved, but now it feels easier to take a loan and repay in instalments,” Aditya Jhamb, a 26-year-old producer at Fillme Network in Delhi, tells Media India Group.
“Credit cards and instant loan apps make it convenient, but sometimes you do not realise how quickly the dues add up. I now have to plan my monthly budget more carefully to manage EMIs along with regular expenses,” says Jhamb.
While India’s household debt levels remain lower than some emerging market peers, the speed of increase and the tilt toward consumption-driven borrowing raise concern. Unlike housing or education loans, consumption-led debt does not create long-term assets or income streams, making it harder to sustain.
From a macroeconomic perspective, rising reliance on credit to fuel consumption could weaken long-term resilience. If interest rates rise or income growth slows, households may be forced to cut spending sharply, affecting overall demand and economic stability.
Mendiratta adds that for policymakers, the challenge is becoming more urgent. Strengthening lending norms, improving borrower awareness and closely monitoring unsecured credit growth will be critical to preventing stress from building up in the system.
For households, the shift calls for caution. Easy access to credit may provide short-term flexibility, but without adequate savings and financial discipline, it can quickly turn into a burden.
As India’s economy continues to expand, the growing dependence on borrowing to sustain consumption is no longer just a trend, but an emerging risk that could shape the country’s financial stability in the years ahead.