The Reserve Bank of India’s latest Financial Stability Report is reassuring about the health of banks and non-banking finance companies. It is less reassuring about the financial health of their retail customers. India’s household debt reached 45.5% of the GDP by September 2025, close to its earlier peak, and, subsequently, a new high at 47.8% by December 2025. This may not be exceptionally high by international standards. But beneath the headlines are stressed signs that are revealed by the purpose of the loans, who are the borrowers, and what is being pledged.

Non-housing retail loans now account for 58.4% of the household borrowings. Nearly half of all household debt is classified as borrowing for consumption, as distinct from asset creation or a productive activity. A housing loan creates an asset, while a business loan may create an income stream. Even an education loan creates future earnings. But a personal loan used for groceries, medical expenditure or repayment of an earlier loan creates neither.

The distribution of stress is even more revealing. As per the RBI study of 10 large banks, covering nearly 90% of such lending, those with annual incomes below Rs 10 lakh accounted for roughly three-fourths of loan originations. They also accounted for 78% of the fresh non-performing loans in December 2025. This portends the onset of a household-debt crisis. Ironically, corporate loans are doing fine, bringing down the NPA ratio to quite low in the aggregate. But a low NPA ratio should not hide the fact that whatever residual stress exists is overwhelmingly concentrated among those with the least capacity to absorb it.

Microfinance credit declined for seven consecutive quarters till January this year. The borrower base........

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