Expenses of Indian families increased: Small borrowers taking loans for daily expenses

New Delhi| RBI has revealed that while small borrowers are taking loans to meet everyday expenses, big borrowers are taking loans and building properties. Especially big lenders are taking loans for houses. Such people have credit scores above 720, while small borrowers have scores below 720.

The RBI said in the Financial Stability Report, there has been an increase in the debt of Indian households in the last three years. The main reason for this is the continuous increase in the number of borrowers. In June, 2024, 42.9 per cent of GDP debt at current market prices was on Indian households. This is much lower than other emerging countries.

According to the report, the main personal loans being taken in India are personal loans, credit cards, consumer durable, vehicle, two-wheeler, education, agriculture and mortgage loans. The increase in per capita debt among high-ranking borrowers and the use of debt for asset formation is going to increase financial stability.

If one do not pay your personal loan or credit card bill, your home loan or car loan may also face problems. According to the RBI report, if you default on small loans, banks can consider all your loans as NPA. Most defaults are in non-guaranteed loans like personal loans and credit cards. People who have taken big loans for house or car along with these small loans, their risk increases.

Globally, public debt will reach 93 per cent of GDP by the end of 2024. That means it will cross $1 million million. As of 30 June, China’s debt was 140 per cent in proportion to its GDP, while Japan’s was 120 per cent. Emerging markets and euro zone debt has been 100-100 per cent of GDP, developed countries 90 per cent, the US 85 per cent, the UK 70 per cent and India 43 per cent.

Nearly half of borrowers taking credit cards and personal loans already have another retail loan. Such loans are often high-cost, consisting of housing or vehicles or both. The risk of default is higher among borrowers who have taken retail loans other than personal loans or credit card dues. RBI has recently imposed high risk burden on banks and NBFCs on some retail loans like unsecured loans to deal with any kind of risk. About two-thirds of the debt is of better credit quality. Of the 11 per cent of borrowers taking personal loans below Rs 50,000, more than 60 per cent have taken loans more than three times in 2024-25.