Roti, Kapada, Makaan And The Credit Card

Culturally and historically, an affinity towards saving and distrust of debt have been central to Indian households. With the experience of colonial rule, Partition, and the modest income growth in the decades following Independence, Indian households took saving and asset building very seriously across generations.

One of the embedded cultural motifs in older Indian films was the ruthless moneylender charging exorbitant interest rates on one hand, and the aspiration towards building a physical asset on the other—be it that one piece of zameen or the maa ka kangan passed down generations.

Millennials, possessed with this idea of building wealth, inherited the definitive fear of debt and the affinity towards holding physical assets and gold. However, later millennials and Generation Z onwards, the concepts of saving and debt have evolved very differently. Presumably, instant gratification has taken hold of the younger generation, driven largely by technology enabled access to debt and the immediate availability of goods and services.

Not surprisingly, the post-liberalisation protagonist in film, and later on social media, could be unapologetically rich and flaunting a lavish lifestyle: conspicuous consumption for the masses seemed natural. But as much as consumption patterns changed, is it being funded by debt? How are we saving then and what are we investing in? What are the larger ramifications for the economy?

First and foremost, Indian households, as the latest RBI Financial Stability Report shows, are increasingly becoming indebted. Household debt continues to rise, reaching 45.5% of GDP by end-September 2025, which is higher than the longer-term trend of 42.9%. Moreover, this increase is driven primarily by non-housing retail loans, which account for 58.4% of total household borrowings (FSR, p. 44). Loans for consumption purposes, according to the RBI, are half of household borrowing.

The Figure 1 shows the growth in asset-building loans (share and growth) and non-asset-building loans. We include home, consumer durable, education and vehicle loans as asset-building loans. The borrowings against shares, deposits, credit cards, gold and other personal loans are considered as consumption-driven non-asset building loans. As the data shows, the steady rise in borrowing is largely due to consumption loans. This suggests the household balance sheet itself is changing and an increasing share of household’s consumption is financed by credit, not just income alone.

Figure 1: Asset building and consumption driven loans

 

Notes: The sharp acceleration in housing credit growth during July 2023 primarily reflects the HDFC Ltd–HDFC Bank merger, which transferred a substantial housing loan portfolio onto the balance sheet of the banking system. The subsequent decline in year-on-year growth from mid-2024 largely again is a base effect rather than a contraction in housing lending. Source: RBI Sectoral deployment of credit, Authors’ calculations

While the RBI FSR reports that the risk profile of borrowers has improved, with moderation in non-performing loans across lender categories and loan products, could it be because households are taking loans to pay loans? The rise in personal loans seems to suggest this. 

Second, what are we saving in, and are households building assets? Overall household savings as percentage of total savings is slowly falling (Figure 2). As a percentage of gross savings, investments in gold and silver have dipped, though recently there has been a sharp increase in loans against gold (CAGR of 42.4% since March 2024, nearly twice the pace of overall non-housing retail loans: FSR, 2026). On the other hand, savings pattern has changed with deposits falling and savings to equity markets increasing (Figure 3).

According to AMFI, assets under management increased by 23.1% year-on-year in 2025, reaching roughly ₹55 lakh crore, with SIP accounting for nearly 20% of the mutual fund industry's assets. The Nifty 50 index has increased by about three times from its COVID-19 low in March 2020.

Figure 2: Household Savings as % of Gross Savings

 

 

 What Are The Ramifications?

First, a higher debt-driven economy could become an issue against an income shock (even to specific sectors like IT or financial services) or persistent inflation. In both cases, if household incomes suddenly fall or purchasing power dwindles by inflation, consumption falls and EMI payments become difficult, leading to a debt spiral. As BIS studies show, while debt is good for the economy in the short term, it can in the longer term, lead to steep setbacks. Experience of GFC clearly showed, as long as incomes and asset prices increase, debt is sustainable.

Second, the kind of investment in the equity market shows a worrying trend. While long-term returns from equities are undoubtedly more than debt, the nature of investment right now in the retail market is largely speculative and short term. SEBI reiterated how even in 2024–25, about 91% of individual F&O traders continued to make losses, and aggregate retail losses increased by 41% to around ₹1.06 trillion.

Third, if certain sectors show exuberance, do we need to be cautious? At present, gold loans have shown a huge jump, boosted by the increase in the price of gold. The FSR sounded a note of caution. If the price of gold corrects, the loan-to-value could increase sharply. To exemplify, for a loan given on ₹100 worth of gold is ₹75, an increase in price can lead to a fall in LTV and get the borrower more debt, while if prices correct for long, say becomes ₹80, the LTV increases, leading to stress. Again, the exposure of the NBFCs to this sector, whose asset quality has been far from robust, makes the situation worrying.

What is the policy perspective? Will a higher interest rate help? In a country like India, with structurally higher inflation, a higher interest rate protects domestic savers' real returns. Wouldn’t that lead to more burden for borrowers? Need not be. With the development of the banking system and the move to digital banking, leading to a fall in operational costs, banks can sustain more competitive intermediation margins. India has had an asymmetric transmission, so that increases in rates are passed on to loans, not deposits. This needs to change to protect savers and encourage savers to move back to bank deposits.

 *The opinions of the authors are personal, informed by professional expertise.