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India's Market
India's credit market is starting to look a bit like a K-shaped recovery. On one side, subprime borrowers are piling on loans for daily expenses, while those with deeper pockets are tapping into credit to invest in assets-essentially, building their future. That's according to a recent report by Nomura, which paints a fascinating, if slightly worrying, picture.
Citing data from the Reserve Bank of India's (RBI) Financial Stability Report (FSR) released last week, Nomura pointed out that household debt has ballooned to 43% of GDP-quite the leap from just over 35% back in March 2020. And here's where it gets interesting: loans for consumption are eating up a bigger share, while borrowing for assets is taking a back seat.
The FSR also rang alarm bells about small personal loans under ₹50,000. Turns out, 11% of borrowers in this category are behind on payments, and more than 60% have taken out at least three loans this year alone. That's a troubling sign of growing financial pressure among lower-income households-and a reminder that not everyone's enjoying the same post-pandemic recovery.
Nearly 60% of personal loan borrowers in Q2FY25 were already juggling three or more active loans when they applied-a financial tightrope walk, no doubt.
Nomura's report didn't stop there. It called attention to rising write-offs in unsecured retail credit and flagged increasing delinquency rates in the microfinance sector. On the surface, things look calm for banks, with gross non-performing assets (GNPA) sitting at a multi-year low of 2.6%. But the RBI's stress tests suggest there's more to the story. By FY26, even under a baseline scenario of strong growth and cooling inflation, GNPA could creep up to 3%. So while the headlines might feel reassuring today, the cracks are still there, just below the surface.
The RBI has sounded the alarm about how unsecured loans-like personal loans and credit cards-can cause a domino effect. If someone defaults on these smaller loans, it can spill over into their bigger, secured loans. The way it works, lenders automatically mark all of a borrower's loans as non-performing if there's a default anywhere, no matter the type.
What's more, the RBI noticed that trouble usually starts with unsecured loans. Borrowers who already have a personal loan or credit card balance and take on additional retail loans are more likely to struggle with repayments. It's a tough spot, and it shows how quickly things can spiral for both borrowers and lenders.