India household debt hits 45.5% of GDP as consumption loans surge

India's household debt climbed to 45.5% of gross domestic product by the end of September, up from 41.3% at the close of the 2024-25 fiscal year, the Reserve Bank of India said in its latest Financial Stability Report. The central bank attributed the rise largely to non-housing retail loans, which made up 58.4% of total household borrowings as of March.

Borrower quality improved alongside the increase in leverage. The share of borrowers rated prime or above rose, both in outstanding credit and in borrower count, the RBI said. That improvement cut across consumption and productive loans.

Consumption loans now account for nearly half of all household debt, the biggest single category. Productive-purpose loans came second. Borrowing for asset creation – mortgages and business investment – grew at a slower pace.

India's household debt-to-GDP ratio sits above Chile (44.1%), Brazil (36.7%) and South Africa (33.6%) but below Thailand (87.3%), Malaysia (69.9%) and China (59%). The range suggests room for further accumulation without triggering systemic stress, provided borrower quality holds.

The concentration in unsecured consumer credit remains a risk if income growth stalls. Banks with large retail loan books could face higher provisioning in a downturn. The RBI's own stress test published earlier showed banks hold adequate capital, though non-bank lenders showed cracks.

For the RBI, the rising debt ratio may give pause to rate cuts. Higher household leverage makes the economy more sensitive to borrowing costs. The improvement in prime-rated borrowers suggests banks are tightening standards, which should keep non-performing loan ratios contained for now.

The next FSR will show whether the composition shifted further toward consumption or whether asset-creation loans start catching up.