Over 50% of Household Loans Used for Spending, Not Asset Creation: RBI

Moneylife Digital Team 01 July 2025

Personal Finance

The Reserve Bank of India (RBI), in its latest financial stability report (FSR), has raised a red flag on the shifting composition of household debt, noting that a growing share of borrowings is being used for consumption rather than asset creation. As of March 2025, RBI says non-housing retail loans—largely directed towards consumption—made up nearly 55% of total household debt, indicating a behavioural shift in personal borrowing trends.

India’s total household debt stood at 41.9% of gross domestic product (GDP) at the end of December 2024. Though still modest when compared to other emerging market economies, RBI says the rising reliance on credit for consumption purposes could pose long-term concerns around financial discipline and debt sustainability, especially in an environment of easy access to personal loans.

According to RBI, non-housing retail credit, which includes personal loans such as credit card dues, consumer durable financing and unsecured credit, now accounts for 25.7% of households’ disposable income as of March 2024. This segment has consistently outpaced housing, agriculture and business loans in terms of growth over recent years.

In contrast, housing loans comprised only 29% of overall household debt by March 2025 and, while their growth has remained steady, the expansion is increasingly coming from existing borrowers availing top-up or additional home loans.

RBI data also shows a rising share of home loans with loan-to-value (LTV) ratios exceeding 70%, indicating growing leverage. Although delinquency levels among these borrowers remain higher than those of others, they have moderated significantly from the peaks witnessed during the COVID-19 period.

On a broader scale, India’s household financial balance sheets appear relatively resilient. Per capita debt of individual borrowers has increased from Rs3.9 lakh in March 2023 to Rs4.8 lakh by March 2025, with much of this growth attributed to higher-rated borrowers.

RBI noted that the share of prime and above-rated customers has increased in terms of the number of borrowers and the volume of outstanding loans which bodes well for overall debt serviceability and financial stability.

The central bank also reported strong growth in household financial wealth in FY23–24. "While a portion of this increase stemmed from asset price gains, a substantial share came from increased savings. Deposits, insurance, and pension funds continued to dominate household financial assets, even as participation in equities and mutual funds gradually rose."

Despite the broad stability, RBI emphasised the need for careful monitoring of debt accumulation patterns, particularly among lower-rated and more leveraged households. While the ongoing easing of the monetary policy cycle is expected to ease repayment burdens, the central bank warned that the steady growth in consumption-led borrowing could pose systemic risks if not prudently managed.

In its assessment, RBI says that risks to the financial system from household lending remain contained, but cautioned that the evolving debt landscape—marked by a tilt towards consumption—must be watched closely to avoid vulnerabilities down the line.

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