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Economy

Household savings in India hit by 'unsecured' loans surge

India's household savings have seen a sharp decline amid rising financial liabilities, a report by Blume Research reveals. With foreign direct investment (FDI) inflows also low, the increasing reliance on unsecured personal loans raises concerns over long-term economic stability, as debt levels outpace financial savings.

News Arena Network - New Delhi - UPDATED: March 1, 2025, 12:02 PM - 2 min read

Representative image.


A report by Blume Research has raised concerns over India’s declining household financial savings, attributing it to rising financial liabilities, particularly unsecured personal loans.

 

The report highlights that while the nation’s overall savings rate appears stable, a closer examination reveals a steep fall in household financial savings, a trend that could impact long-term economic stability.

 

The report states, “A high savings rate is necessary given low FDI rates. A deep dive into savings illustrates that the culprit is financial savings (as opposed to physical savings), and the reason is rise in financial liabilities, chiefly led by rising (unsecured) personal loans.”

 

According to the findings, household savings—historically the primary driver of India’s total savings—have witnessed a considerable decline over the years. In FY00, household savings accounted for 84 per cent of the total national savings, but this proportion has dropped to 61 per cent in FY23.

 

A significant factor behind this decline is the contraction in household financial savings, which fell from 10.1 per cent of GDP in FY00 to just 5 per cent in FY23.

 

Simultaneously, financial liabilities have surged from 2 per cent to 5.8 per cent of GDP in the same period, indicating a sharp rise in household debt.


Also read: India's per capita GDP to hit ₹2.35 lakh in FY25: SBI

 

The report highlights that an increasing share of this debt is non-housing debt, which in India is relatively higher compared to many other economies.

 

This surge is largely driven by consumer loans, with their share in total credit rising from 21 per cent in FY16 to 34 per cent in FY24, while industry loans have declined from 42 per cent to 34 per cent in the same timeframe.

 

A key contributor to this growing indebtedness is the proliferation of Small Ticket Personal Loans (STPL), which are unsecured and easily accessible.

 

The report notes that non-banking financial companies (NBFCs), particularly fintech firms, have emerged as the primary lenders of such loans, often disbursing them digitally.

 

Unlike traditional banks, these entities offer quicker access to credit, thereby exacerbating household financial liabilities.

 

The findings raise concerns over the sustainability of India’s savings and debt levels.

 

With an increasing proportion of household income being allocated to loan repayments, savings could continue to shrink, potentially affecting broader economic stability in the years ahead.

 

Also read: India needs 7.8% growth to be 'developed nation': World Bank

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