The Reserve Bank of India’s latest Financial Stability Report is reassuring about the health of banks and non-banking finance companies. It is, however, less reassuring about the financial health of their retail customers.

India’s household debt had reached 45.5 per cent of GDP by September 2025, close to its earlier peak, and scaled a new high of 47.8 per cent by December 2025. This may not be exceptionally high by international standards, but beneath the headlines lurk signs of stress, revealed by the purpose of the loans, who the borrowers are and what they are pledging to get the loans.

Non-housing retail loans now account for 58.4 per cent of household borrowings. Nearly half of all household debt is classified as borrowing for consumption, as distinct from asset creation or 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 or medical expenditure or repayment of an earlier loan does none of the above.

The distribution of stress is even more revealing. As per the RBI study of 10 large banks, covering nearly 90 per cent of such lending, those with annual incomes below Rs 10 lakh accounted for roughly three-fourths of loan originations. They also accounted for 78 per cent of fresh non-performing loans in December 2025. This foretells a household-debt crisis.

Ironically, corporate loans are doing fine, making the NPA ratio quite low in the aggregate. But a low NPA ratio should not hide the fact that the residual stress is overwhelmingly concentrated among those with the least capacity to absorb it.

Also Read: The big squeeze

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