Youngsters in India are quite likely to buy an iPhone on EMIs with their first salary. Next, they might go for an expensive bike or a four-wheeler and thereafter, a foreign trip. All on credit. 

It’s not just them. Families too are raising money against gold to meet medical bills or taking car loans or personal loans without batting an eye. 

According to the Reserve Bank’s Financial Stability Report 2026, the household sector’s debt continues to trend upward, reaching about 45.5% of GDP in 2025, above its five-year average of 42.9%.

But here’s the worry for policymakers. 

These expenses increase liability without creating any asset. Individually, none of these borrowings necessarily signals financial distress. Taken together, however, they point to a significant change in the way Indian households manage their finances.

“For decades, Indian households followed a simple financial rule: save first, spend later. Today, however, borrowing has become an increasingly integral part of household finances, fueled by rising incomes, rapid urbanisation, digital payments, and unprecedented access to formal credit. From home loans and vehicle financing to credit cards, EMIs, and buy-now-pay-later schemes, debt is no longer reserved for major life events, it is becoming a routine tool for managing consumption and aspirations,” said a Kotak Mahindra Mutual Fund report.

These debt-induced consumptions have become possible because of liberal credits provided by banks, Non-Banking Financial Companies (NBFCs), and microfinance institutions. 

At an aggregate level these non-asset creating expenses have been escalating household debt, which have spiralled fast in the last few years and may soon reach disturbing or even alarming levels if not checked in time.

Spiralling Household Debts

“The increase has been driven primarily by non-housing retail loans, which constitute 58.4% of total borrowings as of March 2026. Their share has increased steadily over time, consistently outpacing housing loans as well as agriculture and business loans,” the RBI report said.

The Bank for International Settlements has put India's household debt even higher at 47.8% of GDP in December 2025. 

The Allianz Global Wealth Report 2026 showed that Indian household financial assets increased by 9% in 2025 to about US$ 5.3 trillion. But household liabilities increased by 14.3% to US$ 1.59 trillion. 

The striking development is that household liabilities are growing faster than household financial assets.The real question, therefore, is not simply whether Indians are borrowing more. It is: why they are borrowing and whether their incomes can support those obligations over time.

According to the RBI report, loans availed for consumption purposes account for nearly half of total household borrowings. “Consumption-related loans remained the primary driver of household borrowings, followed by loans for productive purposes, whereas borrowing for asset creation expanded at a relatively slower pace,” it added.

The total personal loan outstanding, which includes lending for consumer durables, housing, credit cards, vehicles, loans against gold jewellery, and unsecured loans referred to as ‘other personal loans’ rose from ₹30.09 trillion in March 2021 to ₹72.87 trillion at the end of August 2026.

The ‘other personal loans’ or unsecured bank loans outstanding grew from ₹5.53 trillion in March 2019 to ₹17.32 trillion in March 2026. In the case of NBFCs, personal loans rose from ₹2.13 trillion in March 2019 to ₹5.45 trillion by September 2025. 

Non-housing retail loans — personal loans, credit cards, consumer durables and auto loans — now make up 58.4% of total household borrowings, up from 54.9% in March 2025 and around 50% in 2019-20. Housing loans account for only about 29%. Consumption loans have thus come to form nearly half of all household debt.

The distinction matters. 

A home loan creates an asset and is repaid out of a long-term income stream; a business loan can create earnings. But a personal loan taken for an overseas visit, medical bills, groceries, or to repay an earlier loan, creates neither and depends entirely on future income holding up. Non-housing retail credit is far more directly exposed to what happens to wages and employment.

Reasons For Rising Debt

Several structural and behavioral factors lie behind rising household debts that fund consumption. 

Digital onboarding, e-KYC, pre-approved offers, and algorithmic underwriting by banks and fintech firms have made it easier for salaried professionals and individuals with steady income to get a personal loan. Also, they can get the higher credit card limits sanctioned in minutes, often without visiting a branch.

The RBI in 2023 did try to check rapid expansion of credit by increasing risk weights on unsecured consumer credit. The move, however, did not have the desired impact, and the credit continued to expand.

There has also been a cultural shift in how young Indians view debt and consumption. The younger generation is influenced by social media, consumerism, fast fashion, and aspirational lifestyles. The time-tested mantra of ‘save first, spend later’ is giving way to ‘spend tomorrow’s income today.’ 

In addition, income and employment realities are also responsible for growth in household debt. 

For many households, real income growth has been stagnant or uneven, making credit a tool to maintain or upgrade consumption in the face of flat wages and rising costs. In effect, debt is also being used to smoothen consumption when current income is inadequate. 

Rising debt liabilities have also eroded the household cushion. Net household financial savings fell to a multi-decade low of about 5.1% of gross national disposable income in 2022-23, recovered to 7% in 2024-25, and eased again to 6.2% in 2025-26.

Quality Of Debt Matters

India is not an outlier among emerging economies simply because households are using more credit. The household debt in India as a percentage of GDP is still below that of China (around 59%), Malaysia (about 70%), or Thailand (nearly 87%). 

A growing economy, rising incomes, urbanisation, and greater access to formal finance naturally tend to increase household borrowing.

However, it is the pace of increase in the household debt that should alert policymakers. 

Ultimately, the level of debt matters less than its quality, purpose, and sustainability. Debt used to build human capital or productive assets can be appreciated, but when used mainly for lifestyle consumption without a clear repayment plan can become a trap.

For regulators and banks, the focus should be on monitoring borrower-level leverage, especially for young, first-time borrowers who may have loans from multiple lenders without a consolidated view of their total exposure. 

For policymakers, the focus ought to be on job creation and skill development, as it would ensure that consumption is less dependent on borrowing and more rooted in sustainable earnings.

The next few years will be decisive. They will show whether this credit boom translates into higher, sustainable living standards — financing education, homes, and enterprises — or whether it becomes a drag on household balance sheets and, eventually, on growth itself.

“As long as borrowing supports asset creation and is accompanied by income growth, it may not indicate financial stress. However, levels of leverage need close monitoring as the economy matures," opined Shibani Kurian, Senior Executive Vice President - Equity Research at Kotak AMC.