Gen Z’s Credit Habits Raise RBI Concerns in India

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Gen Z's Credit Habits Raise RBI Concerns in India

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India’s younger generations, particularly Gen Z, are increasingly relying on credit for lifestyle purchases and experiences, leading to a rise in unsecured loans and prompting concern from the Reserve Bank of India (RBI). As of March 2026, non-housing retail loans, largely used for consumption, constituted 58.4% of total household borrowings, a notable increase from 54.9% in March 2025. This shift indicates a growing inclination to incur debt for immediate consumption rather than asset creation.

Outstanding credit card debt surpassed ₹3 lakh crore in the last fiscal year, and delinquencies (payments overdue between 90 and 360 days) rose by over 40% year-on-year. The share of over-leveraged consumers, those with excessive borrowing, tripled from 5% in FY17 to 18% in FY24, before slightly easing to 15% in FY26. Younger consumers are a significant part of this trend, with their share in the country’s credit-active base increasing from 33% in 2017 to 39% in 2026.

The RBI has highlighted that while risks to the Indian financial system from household lending remain contained, the accumulation of household debt, especially among lower-rated borrowers, requires “close monitoring.” In January 2026, the RBI and economic analysts warned of a fundamental shift in India’s consumption model, where private consumption is increasingly sustained by borrowing rather than proportional growth in real incomes. This “debt-driven consumption” model, where households spend more than they earn and borrow to maintain their lifestyle, poses concerns for long-term economic sustainability and financial stability.

Fintech firms play a substantial role in this landscape, holding a 56.8% market share in small-ticket personal loans (under ₹50,000) as of March 2026, with delinquencies in this segment at 6.4%. Approximately 70.5% of fintech loan books are unsecured, with about half extended to borrowers under 35. The “Buy Now, Pay Later” (BNPL) model, which allows consumers to split payments into installments, has also grown exponentially, particularly appealing to Gen Z consumers due to its ease of access and minimal documentation. In March 2026, the RBI introduced stricter oversight for BNPL, requiring services to be linked to regulated lenders and mandating transparency in charges and credit reporting.

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