RBI Flags Rising Household Debt Risks as India’s Savings Fall to Multi-Decade Low

India’s financial system remains stable for now, but early warning signs are emerging around household debt, consumption-driven borrowing, and declining savings, according to the latest Financial Stability assessment released by the Reserve Bank of India (RBI).

The findings have sparked fresh debate among economists and market observers after data showed Indians are borrowing more for consumption while financial savings remain under pressure, a shift that could reshape the country’s economic trajectory if trends continue.

RBI Financial Stability Report Highlights Rising Consumption Credit

The RBI’s recent Financial Stability Report points to a steady rise in non-housing retail loans, including credit cards, personal loans, vehicle finance and consumer durable financing.

According to the report, household debt reached around 41.3% of GDP by March 2025, higher than its historical average, largely driven by consumption-led borrowing rather than asset creation. Non-housing retail loans now account for over 55% of total household borrowings, reflecting growing reliance on easy credit.

This marks a structural change in borrowing behaviour. Traditionally, Indian households borrowed primarily for housing or productive investments. Today, a larger share of loans is linked to everyday spending and lifestyle consumption.

The central bank has not issued a crisis warning but has indicated the need for close monitoring, especially among borrowers with weaker credit profiles.

Household Savings Hit Near 50-Year Low

One of the most concerning signals comes from household financial savings data.

India’s net household financial savings fell sharply to about 5.1% of GDP in FY23, the lowest level recorded in nearly five decades.

At the same time, household liabilities have continued rising, suggesting families are increasingly using loans to manage expenses rather than building financial buffers.

Economists note that savings have historically funded government borrowing and corporate investment in India. A prolonged decline could therefore affect long-term capital formation and economic resilience.

Recent RBI data shows liabilities rising steadily over the past decade while savings ratios have trended downward, signalling a gradual shift from a savings-led economy to a credit-driven consumption model.

Fintech Lending and Young Borrowers Under the Spotlight

The fintech lending sector grew by 36.1% between September 2024 and September 2025, with unsecured loans accounting for more than 70% of fintech firms’ total loan books. Over half of these loans were issued to borrowers under the age of 35.

The RBI flagged concerns about potential over-leveraging through digital lending platforms, noting that younger borrowers may face higher repayment risks. The central bank called for closer regulatory monitoring to prevent localised stress within the fintech lending ecosystem.

Why Borrowing Is Rising: Income Pressures and Cost Inflation

Analysts link the trend to a combination of slower income growth and rising living costs.

While salaries continue to grow nominally, inflation in essentials such as healthcare, education, vehicles and food has reduced real purchasing power. As a result, households increasingly depend on EMIs and short-term credit to maintain consumption levels.

Financial experts also highlight behavioural changes. Easy digital lending, buy-now-pay-later schemes, and wider access to personal loans have expanded credit availability across income groups.

Data cited in financial analyses shows a growing share of loans being used for consumption rather than asset creation, a shift the RBI has described as a key risk area requiring supervision.

Is India Heading Towards a Financial Crisis?

Comparisons with the 2008 global financial crisis are increasingly being discussed, mainly due to rising unsecured lending, falling household savings and growing dependence on credit. While some early warning signs appear similar, experts say the comparison is not exact.

India’s banking system remains far stronger today. Public sector banks maintain a capital adequacy of around 16%, private banks about 18.1%, and gross non-performing assets have fallen to nearly 2.1% as of September 2025, indicating improved financial stability.

However, concerns remain. Net household financial savings dropped to a near 50-year low in FY23, and recovery has been limited so far. If income growth continues to lag behind rising borrowing and living costs, financial stress among consumers could increase over time.

The Reserve Bank of India has not sounded a crisis alarm. Instead, its latest report serves as an early caution, signalling that India’s expanding consumer credit market needs careful monitoring to ensure long-term economic stability.