India’s aspiring middle class is grappling with an unprecedented wave of personal debt, as years of aggressive retail lending and rising living costs converge into a national financial crisis, according to a sobering report by the Financial Times. The investigation sheds light on a growing number of families being pushed to the financial brink — and beyond — in their quest to keep up with a consumer lifestyle once touted as a symbol of India’s economic promise.
Among them is Anurag, a 50-something former travel agent living in a middle-class Mumbai suburb, whose ordeal has become all too familiar. After losing his job late last year, he fell into a $13,000 debt spiral. The breaking point came when a bank agent, attempting to collect arrears, called his wife’s boss — a move that left the family deeply humiliated and socially ostracized.
“This financial struggle has caused a lot of depression that I won’t discuss with anybody,” Anurag told Financial Times, requesting anonymity. “You question your own personal worth… sometimes you contemplate the extreme — you don’t want to continue living.”
Anurag’s story underscores the fragile state of India’s urban middle-income earners, who were once seen as the backbone of the country’s economic ascent. Retail lending in India ballooned by more than 30 percent in 2023, driven by easy access to credit cards, personal loans, and “buy now, pay later” schemes. That credit surge was fueled by the aspirations of millions to purchase everything from smartphones to private school education for their children — and to showcase it all on social media.
But as household debt climbed to 43 percent of GDP by mid-2024, the Reserve Bank of India (RBI) sounded the alarm. Regulatory crackdowns on unsecured lending, including raising risk weights on personal loans, have now triggered a dramatic pullback from banks and non-banking lenders alike.
“What people do not realise is there is only a small part that’s driving growth,” said Kunal Kundu, India economist at Société Générale, pointing to rising inequality and stagnating wages. “The lower half of the pyramid is really struggling.”
According to research from Marcellus Investment Managers, roughly 10 percent of India’s middle-income earners are trapped in a cycle of debt. Average clients at credit resolution firms like Freed carry around six different loans, totalling approximately $6,000, despite earning as little as $460 to $580 a month.
The human toll is stark. Another Mumbaikar, 59-year-old Ranganathan Iyer, borrowed from 11 different institutions — eventually racking up debts over $70,000 after losing his job during the pandemic. When collectors began making a scene outside his apartment, even contacting his relatives to pressure repayment, his mental health collapsed.
“They call families and friends, making it even tougher for the person to take money from anyone,” Iyer told Financial Times. “Whatever little respect I had, they ruined that.”
This style of coercive collection has become so rampant that states like Karnataka have introduced legislation to curb what they describe as “inhumane” loan recovery tactics. Revenue Minister Krishna Byre Gowda has publicly accused microfinance institutions of lending “way beyond the prescribed capacity,” particularly in poor and rural communities where financial literacy is often low.
Meanwhile, India’s federal government has been slow to acknowledge the crisis. Although Finance Minister Nirmala Sitharaman introduced middle-class tax breaks earlier this year, critics argue the measures fall short. The Financial Times reports that the finance ministry did not respond to repeated requests for comment.
Economists warn that unless structural changes are made, India’s development ambitions — including Prime Minister Narendra Modi’s vision of becoming a developed nation by 2047 — may falter. While India remains one of the fastest growing economies globally, recent GDP figures suggest a cooling, with growth expected to slow to 6.5 percent for the fiscal year ending March 2025 — well below the 8 percent target needed to meet national goals.
The unsecured lending boom has even spilled into financial markets, with many retail investors using personal loans to speculate in stocks and derivatives. That exuberance, once a symbol of growing financial participation, has now triggered volatility, with benchmark indices such as the Nifty 100 dropping 14 percent since last September.
Late payments on personal loans (90+ days overdue) have surged to 5.2 percent as of September 2024, more than double the pre-pandemic rate. Shadow lenders and microfinance firms, which fueled much of the lending boom, are now buckling under bad debt. S&P Global Ratings found that delinquencies among microfinance borrowers earning less than $3,400 annually have nearly doubled to 13 percent in just two years.
RBI’s recent interventions — including cease and desist orders against four NBFCs — have provided some relief. But as economist Dhiraj Nim of ANZ Group puts it, “The urge to spend away… coupled with accessible bank credit and low financial literacy, led to this personal loan boom. That is a risky aspect which everybody is now waking up to.”
Debt resolution firms like SingleDebt and Freed have emerged as unlikely safety nets, negotiating on behalf of clients to shield them from harassment. But their founders warn that the root causes remain unaddressed.
“This is a time bomb ticking away,” says Harish Parmar, founder of SingleDebt. “There seems to be no active solution on the table.”
For Anurag and millions like him, the financial trauma is ongoing — and deeply personal. “We were trying to feel comfortable at home, occasionally dining out and travelling,” he recalls. “I don’t think I was really living lavishly.”
Now, he’s just hoping for a second chance.
