Rising Dependence on Credit Raises Concerns as Household Savings Remain Under Pressure in India

The trend is evident across income groups. Indians are now spending more than Rs 1.5 lakh crore every month through credit cards, while personal loan disbursements are approaching Rs 30,000 crore monthly. From vacations and electronic devices to weddings and routine expenditures, consumers are increasingly turning to unsecured credit facilities that do not require collateral.

India's outstanding retail loan portfolio currently stands at approximately Rs 60 lakh crore. Of this, nearly Rs 15 lakh crore consists of unsecured loans, including personal loans and credit card outstanding balances.

According to Abhishek Bhilwaria, Partner at BhilwariaFinserv, the rapid expansion of unsecured retail lending represents a significant transformation in household financial behaviour.

"The unprecedented expansion of India's unsecured retail loan portfolio, which now tracks at approximately Rs 15 lakh crore, unveils a structural realignment in the financial behaviour of the Indian household," Bhilwaria said.

He observed that monthly credit card spending consistently exceeding Rs 1.5 lakh crore indicates that the economy has moved beyond post-pandemic recovery into an era of leverage-driven lifestyle consumption.

Bhilwaria noted that the shift away from traditional asset-building credit toward consumption-led borrowing is exerting pressure on household balance sheets and has pushed India's household debt-to-GDP ratio to approximately 41.3 per cent.

Harsh Grover, Co-Founder of LoansJagat, highlighted similar developments in recent financial data.

Citing Reserve Bank of India figures, Grover said credit card spending increased by 7 per cent year-on-year to Rs 1.97 lakh crore in April 2026, while the number of outstanding credit cards crossed 119.44 million.

Despite rising borrowing, household financial savings remain relatively weak.

"Net household financial savings remain low at just 7 per cent of Gross National Disposable Income in FY25, up from 5.8 per cent in FY24," Grover said.

The purpose of borrowing is also undergoing a notable shift. Survey data cited by Grover showed that vacations account for 27 per cent of personal loans, surpassing home renovation at 24 per cent. The trend suggests that consumers are increasingly using credit for discretionary spending rather than wealth creation.

One of the most significant concerns emerging from this trend is the growing reliance on minimum credit card repayments.

Financial planners report that a rising number of cardholders are paying only the minimum amount due each month. Although this practice helps preserve credit scores in the short term, unpaid balances continue to accumulate substantial interest charges.

Depending on the lender, annual interest rates on revolving credit card balances can range between 36 per cent and 60 per cent.

Piyush Jhunjhunwala, Founder and Chief Executive Officer of Stockify, warned that this repayment pattern could trap households in a cycle of mounting debt.

"Credit card spend is now over Rs 1.5 lakh crore per month, and personal loans are still being disbursed at high levels. This creates a higher chance for a household to depend on debt for consumption rather than for income growth," he said.

"In addition, a larger population of borrowers are only making the minimum payments due with their credit cards, which puts them at risk for interest charges averaging between 36 per cent and 60 per cent a year."

Financial experts caution that interest on unpaid credit card balances compounds rapidly, making it increasingly difficult for borrowers to clear their dues over time.

Early signs of financial stress are already becoming visible within the lending system.

According to Bhilwaria, overdues in the 91-to-360-day category have surged by 44 per cent to Rs 33,886 crore. A significant portion of this increase is being driven by borrowers below the age of 35, many of whom are rolling over debt at exceptionally high interest rates.

While he does not view the situation as an immediate threat to the banking sector, Bhilwaria believes the figures reveal growing financial strain among urban consumers.

"These rising defaults do not present an immediate threat to the structural safety of major commercial banks, but they reveal localised financial distress," he said.

"It suggests that a significant cross-section of urban consumers is funding everyday survival and discretionary aspirations through high-cost, short-term debt."

The Reserve Bank of India has already taken steps to address potential risks in the segment. Bhilwaria pointed out that the central bank's decision to raise risk weights on unsecured banking exposures to 125 per cent demonstrates that regulators are closely monitoring developments in unsecured lending.

Experts say the debt situation becomes more concerning when viewed alongside the country's savings trajectory.

Sarika Grover, Co-Founder of LoansJagat, warned that the combination of rising unsecured borrowing and weak household savings could leave families vulnerable during periods of economic disruption.

"Unsecured retail loans account for 53.1 per cent of total retail loan slippages across scheduled commercial banks," she said, citing findings from the Reserve Bank of India's Financial Stability Report.

She further noted that nearly half of all personal loan and credit card borrowers also hold home loans or vehicle loans.

"This creates a situation where a default on a smaller loan can also lead to non-performing asset classification on larger loans," Grover said.

The risk is intensified by elevated credit card interest rates, which generally range between 36 per cent and 48 per cent annually on unpaid balances.

Jhunjhunwala said the combination of increasing leverage and weakening savings reduces a household's capacity to absorb financial shocks, including job losses, medical emergencies, or unexpected expenses.

"While India's household debt-to-GDP ratio remains lower than many developed economies, the pace of growth in unsecured credit deserves close scrutiny," he said.

Experts agree that borrowing itself is not inherently problematic. The challenge arises when debt repayments begin consuming a substantial share of household income.

A widely accepted financial guideline suggests that total monthly loan repayments should not exceed 50 per cent of monthly income, while many financial planners recommend maintaining the ratio within 30 to 40 per cent.

Jhunjhunwala advised consumers to use credit primarily for income-generating or wealth-building purposes rather than routine consumption.

"Credit should generally not exceed 30-40 per cent of your monthly income. People should avoid relying on high-cost unsecured loans for routine living expenses," he said.

As India's credit culture continues to evolve, experts stress that repayment discipline, prudent borrowing practices, emergency savings, and manageable debt levels will remain essential safeguards against long-term financial vulnerability. The rapid growth of unsecured lending highlights both the strength of consumer demand and the growing need for financial caution in an increasingly debt-driven economy.