Rise in household debt because number of borrowers rose: RBI

Household debt is on a rising trend with the super prime borrowers borrowing to create assets and the subprime borrowers borrowing for consumption purposes. But dispelling concerns about a built up in bubble , the Reserve Bank of India said that the increase is driven by a growing number of borrowers rather than an increase in average indebtedness in its latest financial stability report released on Monday.

At 42.9 percent of the country’s gross domestic product at current market prices in June 2024, India’s household debt is relatively low compared to other emerging market economies. “However, it has increased over the past three years. Even as household debt is on a rising trend, the increase is driven by a growing number of borrowers rather than an increase in average indebtedness” the central bank said.

A disaggregated analysis of the nature of individuals’ borrowings shows that loans are primarily used for consumption (personal loans, credit cards, consumer durable loans and other personal loans), asset creation (mortgage loans and vehicle loans and two-wheeler loans) and for productive purposes (agriculture loans, business loans and education loans), according to the report.


Borrower-type analysis revealed that subprime borrowers availed loans primarily for consumption purpose, whereas super-prime borrowers used debt for asset creation, especially housing.

But the trend may not be worrisome because per capita debt of individual borrowers has increased sharply for super-prime borrowers in the recent period, while it has remained stable for other risk tiers. “ From a debt-servicing capacity perspective, the rise in per capita debt only among highly rated borrowers and use of debt for asset creation are credit positive and financial stability enhancing” the report said.

The central bank’s assessment of the quality of Indian household debt assumes significance in the backdrop of a sharp rise in retail borrowings in the banking sector raising asset quality concerns if repayment is hit because of over borrowing and income loss. The Reserve Bank, it may be recalled had imposed higher risk weights on certain retail loans like credit card outstandings and unsecured loans to rein in such lendings by banks and NBFCs.