Indian households are increasingly relying on retail loans, with consumer loans now constituting a significant 55.3% of their total borrowings in the first half of fiscal year 2026. This marks a considerable shift in borrowing patterns, where loans for consumption have surpassed housing, agriculture, and business loans.

Data from the Reserve Bank of India (RBI) indicates a consistent rise in retail consumer loans since March 2019. Personal loans account for a dominant 22.3% share of these consumption-driven loans. This surge in personal loans contributes significantly to the overall increase in household indebtedness, which has exceeded its five-year average, reaching 41.3% of India's Gross Domestic Product (GDP) in the last financial year. The five-year average was 38.3%.

While the household debt level has increased, it remains lower compared to many emerging market economies (EMEs) like Chile, China, Malaysia and Thailand, where debt levels range from 45.1% to 88% of GDP. However, India's household indebtedness is higher than that of South Africa and Brazil, where the levels were 33.8% to 36.6% of GDP.

This increase in borrowing is partly attributed to a rise in the share of borrowers with better credit ratings, suggesting a degree of resilience in the household sector. As of September 2025, "prime and above rated" borrowers accounted for 56.2% of total household loans in terms of volume and 70.4% in terms of loan value.

India's consumer lending sector demonstrated robust growth in 2025, fueled by declining interest rates, supportive government policies, and evolving consumer behavior. Retail credit experienced a 17% surge, reaching ₹144 lakh crore and serving approximately 29.8 crore individuals. Within this, housing loans constituted 29% of the total retail credit, amounting to ₹41 lakh crore, with new disbursements reaching ₹5.5 lakh crore. Personal loans also experienced a 9% year-on-year growth, reaching ₹15 lakh crore with new lending of ₹5.3 lakh crore, while auto loans expanded by 15% year-on-year to ₹9.5 lakh crore.

Looking ahead to 2026, experts anticipate continued growth in retail credit, driven by rising income levels, evolving consumer lifestyles, and sustained demand in housing, mobility, and personal loans.

However, there are emerging concerns regarding asset quality in the retail loan sector. A report by CareEdge Ratings suggests that non-performing assets (NPAs) in India's banking system are likely to increase slightly in the first half of FY26, primarily due to rising stress in unsecured personal and microfinance loans. This is echoed in the Q1 FY26 earnings of Bajaj Finance, which indicated decent growth but also a rising undertone of stress in certain loan segments, along with similar concerns raised by Kotak Mahindra Bank and SBFC Finance.

Despite these concerns, an SBI report suggests that India's household debt is manageable, especially considering that two-thirds of the portfolio is of prime and above credit quality. The RBI also views the rise in household debt as manageable, attributing it to a growing number of borrowers rather than an increase in average indebtedness.