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Introduction: The Curious Case of Credit Growth in a Cautious Economy
India’s economy has been showing robust credit growth numbers for the past few years, despite global uncertainties, tightening interest rate cycles, and a supposedly cautious consumer. On the surface, it appears like a success story—retail credit is surging, corporate borrowing is on the rise, and NBFCs are back in action. However, underneath this exuberance lies a complex conundrum: is this credit growth a reflection of real economic strength, or is it compensating for a deeper lack of consumer confidence and demand? As India marches into 2025 with a renewed focus on consumption-driven growth, it’s essential to dig deeper and question the very foundations of this lending spree.
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The Numbers Say Boom: Credit Growth Statistics for 2024-25
🔸 According to the RBI’s latest Financial Stability Report, India’s overall non-food credit grew by 14.9% year-on-year as of March 2025.
🔸 Retail credit continues to dominate the pie, growing at over 18% YoY, primarily led by personal loans, credit cards, and vehicle financing.
🔸 MSME credit, bolstered by government-backed guarantees and interest subsidies, rose 17.2% YoY.
🔸 NBFCs, once cautious post-IL&FS crisis, now account for a growing share of unsecured loans, clocking above 20% growth.
🔸 Yet, private consumption’s contribution to GDP has stagnated at 58.6%, slightly below pre-COVID levels.
The contradiction is obvious: credit is booming, but consumer spending and confidence are not keeping up. What gives?
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A Rising Tide or a Leaking Boat? The Role of Unsecured Lending
One of the biggest drivers of credit growth in India right now is unsecured personal loans. These include credit cards, buy-now-pay-later (BNPL) schemes, payday loans, and other forms of microcredit issued through fintech platforms and NBFCs. Here’s the problem: this segment is inherently risky.
🔸 A recent RBI paper warned that the proportion of unsecured loans in retail credit portfolios has jumped to over 27% in FY2025.
🔸 Fintech platforms are aggressively expanding into Tier 2 and Tier 3 cities, offering loans with minimal KYC and loose underwriting practices.
🔸 Many borrowers are first-timers with little credit history, raising the specter of default.
🔸 Credit bureau data shows a rise in 30-90 day delinquencies in the BNPL and credit card segments, especially among the under-30 demographic.
So, while the loan books are expanding, asset quality risks are simmering just below the surface. Is this growth sustainable, or is it artificially propped up by easy credit?
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What About Consumer Confidence? A Missing Link
Consumer confidence in India, as measured by the RBI’s Consumer Confidence Survey (CCS), is yet to return to pre-pandemic highs.
🔸 The Current Situation Index (CSI) remains below the neutral 100-mark, even as the Future Expectations Index (FEI) hovers around 108.
🔸 Discretionary spending, particularly on high-ticket items like electronics and real estate, is still cautious.
🔸 Rural demand, traditionally a backbone of Indian consumption, remains subdued due to erratic monsoons and food inflation.
🔸 The job market, especially for fresh graduates, remains competitive with stagnant real wages in many sectors.
Consumers, especially the middle class, are borrowing more—but they’re not necessarily spending more. A rise in borrowing without an equivalent rise in consumer spending hints at borrowing to stay afloat, not to splurge.
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The Wealth Effect Illusion: Rising Asset Prices vs Real Purchasing Power
There’s also the illusion of wealth, thanks to rising stock market indices and booming real estate prices. But this masks the stagnation in real income growth.
🔸 The Sensex may be scaling new highs, but only 4% of Indians invest directly in equities.
🔸 Urban real estate prices have grown over 10% annually, but so have EMIs and rent, eroding disposable income.
🔸 Gold and crypto have attracted young investors, but they offer little liquidity in the short term for actual consumption.
The result is a two-speed economy: the top 10% are thriving and investing, while the rest are borrowing to meet lifestyle aspirations without corresponding income support.
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Corporate Borrowing vs Household Credit: A Tale of Two Trends
Corporate India, too, is borrowing more—but not always for capacity expansion or new investment. Instead:
🔸 A large chunk of corporate borrowing is for refinancing old debt at lower interest rates.
🔸 M&As, stock buybacks, and overseas expansion have driven debt-led balance sheet activities.
🔸 Infrastructure and capex-related borrowing has seen a modest uptick, but nowhere near the levels needed for a genuine investment boom.
Meanwhile, household credit (especially home, auto, and personal loans) has surged disproportionately, signaling a demand pull that may be unsustainable if employment and income don’t grow in tandem.
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The Fintech Frenzy: Credit at the Tap of a Button
India’s digital lending space has exploded, thanks to UPI-based verification, AI-powered underwriting, and API integration with banks.
🔸 Platforms like KreditBee, Slice, and LazyPay have created an ecosystem of instant credit.
🔸 Embedded finance through e-commerce platforms like Flipkart and Amazon are pushing consumers into EMIs for even daily-use items.
🔸 RBI has tried to rein in the chaos through the Digital Lending Guidelines (2023), but the enforcement remains patchy.
🔸 Many small fintechs now offer personal loans with repayment cycles as short as 7-15 days, making them dangerously close to payday lending models.
It’s fast, it’s addictive, and it’s pushing a generation into a credit trap under the guise of financial inclusion.
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Central Bank Concerns: Are We Ignoring the Canary in the Coal Mine?
The RBI has not been blind to these developments. In fact:
🔸 It has increased risk weights on unsecured personal loans from 100% to 125%, signaling higher capital requirements for banks and NBFCs.
🔸 It has nudged lenders to reassess exposure to risky segments, especially fintech-backed personal loans.
🔸 The Financial Stability Report (FSR) has included cautionary notes on the growing divergence between credit supply and real demand.
Yet, systemic action remains limited. Most regulations are reactive rather than preventive. Until a major default cycle begins, the market is likely to remain complacent.
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Policy Fixes: How Can India Align Credit Growth with Real Confidence?
To ensure that credit growth becomes a genuine enabler of economic strength rather than a bubble in disguise, several steps are needed:
🔸 Promote financial literacy, especially in Tier 2/3 cities and among first-time borrowers.
🔸 Strengthen regulation of digital lenders, including mandatory reporting to credit bureaus.
🔸 Link tax incentives and subsidies to verified income growth and formal job creation.
🔸 Shift focus from short-term consumption to long-term productive credit, such as housing, education, and entrepreneurship.
🔸 Use real-time data analytics to monitor credit quality trends and intervene early.
Only then can India build a stable, inclusive credit culture that mirrors real economic health.
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Conclusion: The Need for a Nuanced View on Credit-Led Growth
India’s credit numbers may look impressive on paper, but a deeper dive reveals troubling signs of structural imbalance. A surge in unsecured lending, tepid consumer confidence, and weak income growth suggest that we may be fueling consumption on borrowed time. If left unchecked, this could lead to rising NPAs, consumer distress, and a slowdown in financial sector resilience.
Instead of celebrating credit growth as a sign of prosperity, policymakers, regulators, and market participants must ask: is this growth truly sustainable, or are we mistaking debt-driven survival for confidence-fueled spending? The future of India’s economy may well depend on getting this answer right.
