India’s household debt climbed to 41.3 per cent of gross domestic product (GDP) at the end of March 2025, marking a sustained rise from its five-year average of 38.3 per cent, with consumption-related loans accounting for bulk of the borrowings, the Reserve Bank of India (RBI) said in its Financial Stability Report.

Illustration: Dominic Xavier/Rediff

However, the RBI noted that relative to most peer emerging market economies, India’s household debt remains lower.

Among broad categories of household borrowings, non-housing retail loans extended mostly for consumption purposes continue to be the dominant segment.

It accounted for 55.3 per cent of total household borrowings from financial institutions as of September 2025.

This share has risen over the years, with growth consistently surpassing that of housing loans, and agriculture and business loans, RBI said.

According to the central bank, the decomposition of household borrowings shows that a dominant share of loans was taken for consumption purposes, followed by asset creation, and productive purposes.

Personal loans formed 22.3 per cent of consumption purpose loans at the end of September 2025.

Housing loans formed 28.6 per cent of total household borrowings, while agriculture and business loans accounted for the remaining 16.1 per cent.

Over time, the share of non-housing retail loans has steadily increased, reflecting rising reliance on consumption-led credit such as personal loans, credit cards, vehicle loans and consumer durables financing.

Meanwhile, the report said net household financial savings improved to 7.6 per cent of GDP in Q4 FY25 on account of rise in financial assets and stabilisation of liabilities.

The stock of gross financial assets remained steady above 100 per cent of GDP. Data suggests that growth in financial wealth of households moderated, reflecting a correction in equity and investment funds.

In terms of asset allocation, deposits, insurance and pension funds accounted for nearly 69.2 per cent of household financial wealth as at March 2025-end.

This comes even as the share of equities and investment funds increased marginally.

According to the latest survey conducted by the Securities and Exchange Board of India (Sebi), despite growing awareness about securities market products, overall household penetration remained at 9.5 per cent (of the 337.2 million total households), mainly arising from urban centres.

Within the securities market, however, equity remains the dominant asset class for households.

“Therefore, diversification of household savings to asset classes other than equity and bank deposits, has the potential to aid financialisation of savings and long-term capital formation,” RBI said.