In recent years, India has seen a massive surge in consumer loans, particularly among the middle class. With easy access to credit and the rise of digital lending platforms, more people than ever are relying on loans to manage expenses, fund desires, or bridge gaps between income and lifestyle.
But is this access turning into a trap?
The Rise That Triggered RBI’s Caution
About 6–7 months ago, the Reserve Bank of India (RBI) issued a strong advisory to banks, raising concern over the rapid growth in consumer lending. The central bank feared that if this trend continued unchecked, it could result in widespread defaults, posing risks to both borrowers and banks.
Retail credit card loans have seen a sharp rise over the last 10 years.
The share of retail loans in total loan portfolios has increased from 4% to 11%.
67% of personal loans are being taken by the middle class, making them the most active borrowers.
25% of borrowers now have both credit cards and personal loans — a sign of overlapping credit burdens.
Who’s Borrowing? A Look at Risk Segments
A closer look at the data reveals some troubling patterns:
45% of Indian borrowers are classified as sub-prime meaning they have low creditworthiness.
Of these sub-prime borrowers, 48% of their loans are being used for daily consumption, not long-term investments or emergencies.
This clearly shows that many people with limited ability to repay are taking on loans for routine or lifestyle-related expenses.
Why Are More People Falling Into This Trap?
Several factors are contributing to this growing debt culture:
1. Ease of Access
With digital platforms, peer-to-peer lending, and instant approvals through mobile apps, getting a loan today is as easy as ordering food. A few clicks, an OTP, and the money is in your account.
2. EMI Culture
From smartphones to home appliances, even a ₹500 purchase now comes with EMI options. This convenience often leads people to buy things they don’t need or can’t afford, simply because payment feels painless when broken into monthly instalments.
3. Changing Mindset
Earlier, taking a loan was seen as a last resort — even considered socially undesirable. Today, borrowing is normalized, even encouraged, to fulfil aspirations like travel or lifestyle upgrades.The Hidden Danger of Credit Cards and ‘Buy Now, Pay Later’
Many borrowers overlook the fact that credit card EMIs and BNPL schemes are also loans, often with high interest rates. When used without financial discipline, these tools can lead to a cycle of debt.
Additionally, the emotional disconnect caused by cashless transactions (UPI, QR codes, card swipes) often leads to unmonitored spending. Earlier, paying by cash triggered a sense of loss, now, digital spending feels abstract and distant.
New Loans After RBI’s Warning
Recent data shows that the RBI’s concerns led to some tightening in the lending process:
Banks are now more selective with whom they lend to.
As a result, there’s been a decline in loan disbursal, especially among first-time borrowers (those without a credit history).
Even borrowers with good credit histories are seeing fewer approvals, reflecting a more cautious approach from banks.
A Call for Financial Awareness
The middle class often takes loans thinking they are short-term solutions. But without a clear understanding of repayment capacity, budgeting, and financial goals, these loans can become long-term liabilities.
Key things to remember:
Don’t spend beyond your means — live within your income, not your credit limit.
Avoid loans unless absolutely necessary — especially for non-essential or lifestyle-related expenses.
Maintain an emergency fund and avoid borrowing for daily consumption.
Understand the real cost of credit — especially with credit cards and digital loans.
Loans Should Be Tools, Not Traps
Loans are powerful financial tools when used wisely for emergencies, education, or asset-building. But when they are used to fund consumption or desires, especially without a solid repayment plan, they quickly become traps.
India’s middle class must recognize the invisible line between financial leverage and financial burden. As easy credit continues to tempt, the only safeguard is financial literacy, discipline, and the willingness to say no even when credit says yes.
