IS RISING CONSUMER CREDIT CAUSE FOR CONCERN?

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The RBI’s FSR 2024 highlights a rapid increase in household debt—rising from 36.6% to 42.9% of GDP—while assets decline. Prime borrowers drive asset creation, but vulnerable sub-prime households increasingly fund consumption, raising default risks. Regulation must rebalance credit towards productive investments to stabilize the financial system, ensuring long-term economic resilience.

Last Updated on 15th March, 2025

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Copyright infringement not intended Picture Courtesy: THE HINDU Context: The Financial Stability Report (FSR) 2024 by the Reserve Bank of India (RBI) has highlighted the concern about household finances and loans. Rising Household Debt The RBI report indicates that household debt as a percentage of GDP has increased from 36.6% in June 2021 to 42.9% in June 2024, this rapid growth over three years raises questions about financial health because debt is increasing at a time when household assets have not grown proportionately. Household assets declined from 110.4% of GDP in June 2021 to 108.3% by March 2024. Borrower Profiles Prime and super-prime borrowers comprise about two-thirds of total loans. Sub-prime borrowers are becoming a smaller portion of the debt pool. Super-prime borrowers use around 64% of their loans for asset creation. Sub-prime borrowers dedicate nearly half of their loans to consumption. The report shows a mixed picture where overall credit ...

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