The Household Savings Slide Reversed — But the Borrowing Mix Didn’t

For the better part of two years, the standard line on Indian households was simple: they were saving less and borrowing more. It made for a good headline. It is also, on the latest official numbers, no longer accurate, and the reason it stopped being accurate is rather more interesting than the claim it replaced.

The Reserve Bank of India's Annual Report for 2025-26 put net household financial savings at 7.0 per cent of gross national disposable income (GNDI) in 2024-25, up from 5.8 per cent a year earlier. For a series that normally shuffles along in tenths of a percentage point, that is a lurch. The Centre, answering in the Rajya Sabha in August 2026, put total household savings including physical assets at 21.7 per cent of GDP in FY25.

Cue the celebratory commentary. Before joining it, look at how the number was built.

Read The Two Sides Separately

Net financial savings is a subtraction. On one side sit gross financial savings: everything households put into bank deposits, provident and pension funds, insurance, small savings, shares and debentures. On the other sit financial liabilities: what they borrowed over the same year. The net figure is the residual, and a residual can improve for two very different reasons.

In FY25, both halves moved. Gross financial savings did not rise. They eased to 11.8 per cent of GNDI from 12.1 per cent. Households did not, in aggregate, start putting more away.

Household financial liabilities, meanwhile, fell hard: 4.8 per cent of GNDI against 6.4 per cent the year before. That single line explains essentially the entire improvement in the headline.

So the rebound in India's household savings rate was not a story about thrift. It was a story about borrowing, and specifically about borrowing that slowed down.

Whose Restraint Was It?

A good part of it was the regulator's.

In November 2023 the RBI raised the risk weight on consumer credit, meaning personal loans and similar unsecured exposures but excluding housing, education, vehicle and gold-backed loans, from 100 per cent to 125 per cent for both banks and NBFCs. Credit card receivables went to 150 per cent for banks and 125 per cent for NBFCs. Capital, in short, became more expensive against precisely the loans that had been compounding fastest.

It worked, and roughly on schedule. Growth in "other personal loans", the category that carries most unsecured lending, halved through 2024. By January 2025, overall personal loan growth had cooled to 14.2 per cent year-on-year from 18.2 per cent a year earlier. FY25, the year the savings data now flatters, was the trough of that cycle.

Two points of housekeeping matter here, because both are easy to get wrong and both are getting written wrongly.

First, the November 2023 circular no longer exists as a standalone instrument. Its substance has been consolidated into the Reserve Bank of India (Commercial Banks - Prudential Norms on Capital Adequacy) Directions, 2025. The instrument changed; the numbers did not.

Second, the February 2025 relaxations that generated a good deal of coverage applied to microfinance loans and to bank exposures to NBFCs. They did not touch the 125 per cent on consumer credit, which remains in force. Anyone writing that the RBI "rolled back the unsecured lending curbs" is, at best, half right.

"A savings ratio that improves because credit tightened is a different animal from one that improves because incomes rose. In the table they look identical. Only one of them survives the next credit cycle."

The Flow Slowed. The Stock Did Not.

Here is what a one-year flow number cannot capture.

The RBI's June 2026 Financial Stability Report put household sector debt at 45.5 per cent of GDP as of September 2025. The December 2025 edition had reported 41.3 per cent at end-March 2025, though that comparison straddles a change in the national accounts base year, so the jump should be read with more caution than most coverage has given it. The direction, however, is not in dispute. Household leverage has been climbing for the better part of a decade.

The composition has been drifting too, and this is the part that deserves attention. Non-housing retail loans accounted for 58.4 per cent of total household borrowing as of March 2026. Their share has risen steadily and has consistently outpaced housing, agriculture and business loans. Consumption-related borrowing remains the single largest driver, with lending for productive purposes second and borrowing for asset creation growing slowest of the three.

That distinction matters more than the aggregate level. A home loan is secured against an asset and finances one; the borrower's balance sheet grows on both sides. A personal loan or a revolving card balance is a claim on next year's salary and nothing else. When incomes wobble, the second kind of debt is where the wobble surfaces first.

For now, it is not surfacing anywhere much. Gross NPAs on secured retail loans stood at 0.7 per cent at end-March 2026 and at 1.7 per cent on unsecured retail. Housing loan NPAs were 0.5 per cent, down from 1.2 per cent before the pandemic. These are genuinely strong numbers and they should be read as such rather than explained away. Indian lenders have had a good decade of cleaning up, and it shows.

They are also, by construction, backward-looking. The RBI's own posture in the FSR is watchfulness rather than alarm, and it points at the edges of the system: fintech-originated portfolios that are overwhelmingly unsecured and carry visibly higher delinquency than bank books, and a gold loan segment that has compounded at more than 40 per cent a year since March 2024. Gold-backed lending is secured, but it is secured against a collateral value currently sitting at historic highs. That is a different risk, not an absent one.

The Cycle Has Already Turned

The FY25 savings figure describes a year that ended in March 2025. Since then, the taps have reopened.

RBI's sectoral deployment data for June 2026 shows personal loan growth back at 15.8 per cent year-on-year against 11.7 per cent a year earlier, with non-food bank credit up 18.3 per cent and credit to industry running at 19.2 per cent. Deposits over the same stretch grew about 13.3 per cent. That leaves a credit-deposit growth gap of more than five percentage points, the widest in years, with the system credit-deposit ratio above 81 per cent.

If that gap persists, the FY26 and FY27 household savings numbers will not look like FY25's. Liabilities are accelerating again. Gross financial savings, on current evidence, are not accelerating as fast.

Where The Money Is Going Instead

Households are also changing what they hold, which quietly complicates the arithmetic.

Deposits remain the dominant instrument by some distance, followed by provident and pension funds and insurance, with shares and debentures rising gradually. But the household share of bank deposits has been slipping as families diversify into market-linked products. SIP contributions reached Rs 31,961 crore in July 2026, taking SIP assets under management to roughly Rs 18.2 lakh crore, with total open-ended mutual fund assets at Rs 85.59 lakh crore.

This is a real and largely welcome structural shift. Indian households moving from term deposits and gold into equity is exactly the deepening that policymakers have wanted for two decades. But it changes the character of the savings series. Market-linked savings respond to sentiment and to mark-to-market valuations in a way that a fixed deposit does not. A bad market year will show up in the savings line even if household behaviour has not changed at all.

So What Does This Mean For Consumption?

Better than the pessimists expect, and for better reasons than the optimists usually give.

Private final consumption expenditure grew about 7.7 per cent in real terms in FY26 on the new 2022-23 base series, with GDP growth at 7.6 per cent. Crucially, that came alongside unusually low inflation, the GST rate rationalisation of September 2025, and a new personal income tax structure effective from April 2026. FY26 consumption, in other words, was substantially income-led rather than leverage-led. That is the healthy version of a consumption boom, and it is worth saying plainly.

The question is what FY27 looks like when those income tailwinds annualise away while credit growth is running at 15 to 18 per cent. Consumption financed out of rising real income compounds. Consumption financed out of rising unsecured credit borrows from next year's consumption and charges interest for the privilege. The two are indistinguishable in a quarterly GDP print and entirely distinguishable three years later.

If FY27 consumption holds up only because borrowing keeps rising, the FY25 savings improvement will read, in hindsight, as a pause rather than a turn.

A Caveat Worth Printing

Comparisons across data vintages need care. MoSPI moved the national accounts to a 2022-23 base year in February 2026 and the numbers shifted materially. FY24 net household financial savings read 5.8 per cent of GNDI on the new series against 5.1 per cent on the old. Household debt-to-GDP ratios quoted from different FSR editions straddle the same revision. Anyone stitching together a decade-long chart from press clippings will produce a line that looks dramatic and means very little.

What To Watch

Three things. The RBI Bulletin's preliminary FY26 household financial savings estimates, expected around September. The December 2026 Financial Stability Report, which will be the first proper read on whether the re-acceleration in unsecured credit is showing up in delinquencies. And the Reserve Bank of India (Commercial Banks - Capital Charge for Credit Risk - Standardised Approach) Directions, 2026, effective 1 April 2027, which will reset retail risk weights again and may quietly change the price of exactly the lending this article is about.

The household savings slide has reversed. Whether it stays reversed is a question about credit, not about thrift.

Sources

1. RBI, Annual Report 2025-26 (household financial savings, FY25) — https://www.rbi.org.in/Scripts/AnnualReportMainDisplay.aspx

2. Business Standard, "Net household financial savings rise to 7% of GNDI in FY25: RBI report" (29 May 2026) — https://www.business-standard.com/economy/news/net-household-financial-savings-rise-to-7-of-gndi-in-fy25-rbi-report-126052901658_1.html

3. RBI, Press Release — Financial Stability Report, June 2026 (30 June 2026) — https://rbidocs.rbi.org.in/rdocs/PressRelease/PDFs/PR5720E56F0A4611A404EACBD71F2207673A2.PDF

4. Business Standard, "Household sector debt climbs to 45.5% of GDP in Sept 2025: RBI report" (30 June 2026) — https://www.business-standard.com/finance/news/household-sector-debt-climbs-to-45-5-of-gdp-in-sept-2025-rbi-report-126063001204_1.html

5. All India Radio / Prasar Bharati News Services, RBI Financial Stability Report December 2025 (household debt 41.3% of GDP, March 2025) — https://www.newsonair.gov.in/indian-economy-remains-sound-amid-persistent-global-challenges-rbi/

6. Business Standard, "Risk weight hikes by RBI" (21 Nov 2023) — detail of the 16 November 2023 consumer-credit circular — https://www.business-standard.com/amp/finance/personal-finance/risk-weight-hikes-by-rbi-maintaining-credit-score-now-even-more-crucial-123112100992_1.html

7. Khaitan & Co, "RBI eases risk weight on consumer credit and bank loans" — scope of the February 2025 notifications — https://www.khaitanco.com/thought-leadership/relief-for-NBFCs-and-Microfinance-Institutions

8. KPMG India, "Basel III standardised approach for Indian banks" (May 2026) — Credit Risk SA Directions, 2026, effective 1 April 2027 — https://kpmg.com/in/en/insights/2026/05/basel-III-standardised-approach-for-Indian-banks.html

9. The Hans India / PTI, RBI sectoral deployment of bank credit, June 2026 — https://www.thehansindia.com/business/rbi-data-shows-bank-credit-to-industry-surged-192-in-june-1103589

10. Business Standard, "Growth in personal loans slows down to 14.2% in Jan" (28 Feb 2025) — https://www.business-standard.com/amp/finance/news/growth-in-personal-loans-slows-down-to-14-2-in-jan-shows-rbi-data-125022800981_1.html

11. Business Standard, "Banks strengthen deposit base as credit growth outpaces liabilities" (3 July 2026), citing Crisil — https://www.business-standard.com/industry/banking/banks-strengthen-deposit-base-as-credit-growth-outpaces-liabilities-126070300747_1.html

12. MoSPI, Press Note on New Series of GDP Estimates with Base Year 2022-23 (27 Feb 2026) — https://www.mospi.gov.in/uploads/latestReleases/latest_release_1772189865181_f040336d-bc57-4aed-b80f-586d9ccb279e_Press_Note_on_New_Series_of_GDP_Estimates_with_Base_Year_2022-23_27022026.pdf

13. PIB, "New Series of Gross Domestic Product (GDP) Estimates with Base Year 2022-23" — https://www.pib.gov.in/PressReleasePage.aspx?PRID=2233518

14. Canara Bank Economic Research, GDP Q3 FY26 and Second Advance Estimates FY26 (expenditure components) — https://www.canarabank.bank.in/documents/d/guest/gdp-growth-q3fy26-and-second-fy26-advance-estimates

15. The Tribune / ANI, AMFI data for July 2026 (SIP inflows, industry AUM) — https://www.tribuneindia.com/news/amfi-data/sip-inflows-hit-four-month-high-at-rs-31961-crore-in-july-despite-market-volatility-amfi-data

16. Policy Circle, analysis of the RBI Financial Stability Report, June 2026 (retail asset quality) — https://www.policycircle.org/economy/rbi-financial-stability-report-loans/

17. The India Forum, "The Great Borrowing Boom" (July 2026) — https://www.theindiaforum.in/economy/great-borrowing-boom

18. Organiser, Rajya Sabha reply of 4 August 2026 on household savings at 21.7% of GDP in FY25 — https://organiser.org/2026/08/06/373759/bharat/indias-household-savings-surge-to-21-7-per-cent-of-gdp-tax-relief-rbi-interventions-fuel-financial-recovery/