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India’s borrowing habits are reaching dangerous territory, warns Nithin Kamath, founder and CEO of Zerodha.
Small-ticket personal loans and credit card borrowings are on the rise, often driven by aggressive marketing from fintech apps. Kamath pointed to a disturbing trend: “The defaults among this segment that can't afford to take loans are starting to increase. These delinquencies started to show up in the numbers of banks and NBFCs a couple of quarters ago. We’ll get to know the true extent of the problem in the next few quarters.”
Kamath shared CRIF data that shows how personal loans in India now total ₹13.7 lakh crore. Public sector banks hold 38% of this burden, followed by private banks with 33% and NBFCs with 24%.
However, it’s the meteoric rise in small-ticket loans—many under ₹10,000—that raises serious concerns. NBFCs dominate this segment, issuing 94% of such loans, and their share of new lending grew to 38.7% in the first half of FY25, up from 33.2% last year.
“The lowest hanging fruit and the most bang-for-your-buck thing you can do with your personal finances is to pay off all your high-interest loans, including credit cards,” Kamath advised.
He also highlighted the psychological toll of debt: “If you are in debt, the psychological effects will show everywhere...from your personal life to your workplace.”
Small-ticket loans are particularly problematic. Among borrowers with loans ranging from ₹10,000 to ₹50,000, nearly 29.3% experienced a drop in credit scores within six months of borrowing. Alarmingly, instead of slowing down, these individuals borrowed 62.7% more, increasing their total debt by 37.6%.
After the pandemic, there's been a big increase in personal loans and credit card borrowings. The good side of this is the deepening of credit, but the bad side is some people seem to have borrowed too much or borrowed despite not being able to afford it. A lot of these are small… pic.twitter.com/tMFPTb1m8O
— Nithin Kamath (@Nithin0dha) January 22, 2025Defaults are rising faster in smaller cities, where the percentage of overdue loans in the 31-to-180-day range jumped from 6.8% to 8% in a year. Loans under ₹10,000 have seen defaults over 360 days surge to 39.7%, compared to 24.5% last year.
Kamath reflected on his personal experience: “The worst times in my life have been when I owed money for spending it on things I didn’t really need. The first lesson of personal finance is to borrow only when you are sure that it can earn a return more than the cost of money.”
These trends are happening against the backdrop of a broader credit market expansion. The unsecured business loan segment, for instance, has grown by 43.5% in the past year, hitting ₹7.8 lakh crore. But delinquencies are also rising in this category, especially in smaller towns where economic growth hasn’t kept pace with credit expansion.
Kamath’s advice rings clear: “Ensuring you get out of debt has to be the first thing you do, even before you save and invest.”
English (US)