The traditional approach of the Indian financial system has been ingrained into society for many generations, with the straightforward ethos of earning money, saving money, and spending money. For people in this country, savings have provided security, discipline, and dignity. Debt, however, has traditionally been viewed with trepidation and considered to be a private matter; it has been stigmatised and used only for emergencies and for making investments.
Household debt continues to grow continuously and is on target to surpass savings. In India, the ratio of household debt to the GDP has risen from about 31% in 2016 to about 42.6% for June 2023, while simultaneously, the household net financial savings have hit multi-decade lows of about 5-6% of GDP. Per capita average debt is up 23% over two years at an overall level of 4.8 lakh.
Today, a growing number of Indians—especially younger, urban consumers—are embracing a very different model: spend first, borrow easily, and worry about repayment later. Credit is no longer viewed as a risk to be managed; it is increasingly seen as a convenient extension of income. The long-term data prove this is a structural shift: personal loans have nearly doubled their footprint, rising from 17.1% of all bank credit in March 2013 to 32.4% by March 2024. Crucially, non-housing retail loans—including credit cards, personal loans, and Buy Now Pay Later (BNPL) platforms—now constitute a striking 55% of total household debt, heavily overshadowing traditional home loans, which sit at just 29%.
This shift is not accidental. It is the result of structural changes in how credit is designed, delivered, and consumed.
FROM “SAVE FIRST” TO “SPEND FIRST”
The rise of the Fintech and Non-Bank Financial Company (NBFC) ecosystem has been a major driver of the availability and access to credit. The introduction of pre-approved loans, one-click disbursal, and the availability of lending applications have all contributed significantly towards reducing barriers to entry. The credit application process has been simplified from what previously required paperwork, waiting periods and deliberation, now being able to be completed in just a matter of seconds using a mobile phone. According to RBI data, in just five years, the number of credit cards has more than doubled from 5.53 crore in December 2019 to approximately 10.8 crore in December 2024.
This ease has completely reshaped behaviour. Small-ticket, high-frequency loans are now aggressively marketed, while BNPL options and “no-cost EMI” schemes have blurred the line between affordability and accessibility. To understand the sheer scale of this explosion, industry estimates put the size of India’s BNPL market at about $2.8–3 billion in 2023, with projections of at least $35–36 billion by the early 2030s.
Minimal documentation and instant approval create a powerful psychological effect: borrowing feels easy, and therefore, safe. Borrowing is no longer a considered financial decision; it is often an impulsive one. The UI/UX of modern lending apps is meticulously designed to bypass logical risk assessment, masking the compounding reality of interest rates. For many, credit is simply another payment option—no different from UPI or a debit card.
WHY BORROWING FEELS SAFER THAN SAVING
Modern consumption is driven by instant gratification, while saving requires delayed reward. Data from TransUnion CIBIL shows how sharply this is skewing towards young Indians: by late 2022, 43% of all retail credit enquiries were being made by consumers aged 18–30.
However, it isn’t just aspirational FOMO driving this trend. The privatisation of essential life costs—paired with stagnant real wages and persistent inflation—has birthed the “Econemi,” an economic reality where middle-class India increasingly lives on monthly instalments rather than accumulated savings. Families are no longer just borrowing to build generational assets; they are borrowing to buy daily groceries, pay private school fees, and fund medical emergencies.
Algorithmic credit limits have engineered a dangerous optical illusion of wealth. CIBIL’s data shows that one in three consumers who took their first loan in FY22–23 went on to take a second credit product within a year, and 44% did so with the same lender. When getting approved for a loan acts as a form of instant digital validation, borrowing feels faster, smarter, and infinitely safer than the slow discipline of saving.
THE ILLUSION OF AFFORDABILITY AND HIDDEN RISKS
Borrowers are encouraged to think in terms of monthly EMIs, not total cost. A purchase is justified if the EMI “fits” within the monthly budget, regardless of the long-term financial impact. Credit cards amplify this illusion, with the “minimum amount due” creating a false sense of control.
The result is predictable and structurally fragile. A comprehensive survey of 10,000 distressed borrowers revealed that an overwhelming 85% were spending over 40% of their total monthly income solely on servicing EMIs. When financial buffers are this thin, borrowers are highly vulnerable to external shocks; job losses and sudden salary cuts trigger nearly one-third (31%) of all loan defaults.
When the bubble bursts, the consequences are severe. Rising debt burdens are directly linked to a public health crisis, manifesting as chronic anxiety, clinical depression, and sleep deprivation. Furthermore, the frictionless lending phase is frequently replaced by a brutal recovery phase. In the shadow digital ecosystem, 39% of surveyed defaulting borrowers reported facing aggressively abusive recovery calls, while 11% faced unannounced physical intimidation at their homes or workplaces.
WHAT NEEDS TO CHANGE
The challenge we face is not in providing credit (which is an essential element of economic growth), but in making sure that borrowing is done with purpose and sustainability in mind. To avoid being overwhelmed by a default crisis related to retail borrowers, we need to go beyond generic financial literacy to develop systemic solutions through our regulatory and lending ecosystem.
Upstream Algorithmic Friction & Responsible Product Design: Lenders must utilise AI models as protective gatekeepers rather than just conversion tools. With CIBIL data showing that one in three new borrowers quickly takes on multiple credit products, regulators must institute hard algorithmic friction to prevent further unsecured disbursements if a borrower’s aggregate EMI-to-income ratio exceeds 40%. These hard stops must moderate aggressive cross-selling.
Eradicating “Invisible Debt” & Mandatory Risk Communication: Consumers frequently fall victim to “invisible debt”, where e-commerce apps act as lending brokers. This is especially critical for new-to-credit consumers, who now account for nearly one in five loan originations and are disproportionately concentrated in younger and rural segments. Regulators must mandate transparent disclosure pop-ups that clearly display the ultimate risk-bearing entity and explain the exact consequences of default in simple terms before any loan is activated.
Enforcing Mandatory “Cooling-Off” Periods: To combat impulsive borrowing—particularly in a landscape where 41% of first-time borrowers are Gen Z—digital platforms should be required to feature a clearly visible, one-click “undo” button. This reflective checkpoint would allow borrowers to return disbursed funds within 24 to 72 hours without facing penalties or hidden charges.
Point-of-Credit Education via Holistic Credit Health Mandates: Financial literacy must move beyond school curricula and become actionable at the moment of borrowing. The ecosystem must pivot from static, numerical “Credit Scores” to mandatory, holistic “Credit Health Reports.” These reports must not only interpret a borrower’s financial behaviour but also predict potential cash flow problems and educate them on their repayment options before they enter a debt spiral without having any idea that they were doing so.
Mandatory Alternative Dispute Resolution (ADR): Borrowing decisions are too important to be left to trial and error, and defaults should not result in lifelong harassment. Before deploying recovery agents, the RBI should mandate ADR—such as mediation and conciliation—as the compulsory first step for unsecured retail loan defaults. Ground-level data explicitly demonstrates that 99% of debt disputes can be resolved equitably via structured negotiation without resorting to litigation.
By integrating upstream underwriting friction and democratising dispute resolution, India can harness the power of digital lending while fiercely protecting the financial resilience, mental health, and dignity of its citizens.
Views expressed are personal.)
