Young Indians are chasing their aspirations at a high cost, accumulating mounting loan debts for the latest fashion trends and exotic vacations. This splurging trend has sparked concerns about escalating delinquency rates and a looming lending slowdown in India. A recent study by Freed, a debt resolution platform, revealed alarming statistics about the financial struggles faced by the younger generation:
- A third of millennials and 40% of Gen Z Indians are drowning in unsustainable debt.
- The average Freed client now holds six loans totaling Rs560,000, a significant increase from four loans amounting to Rs520,000 in April.
Ritesh Srivastava, founder and CEO of Freed, attributes this financial predicament to a dangerous mix of aspirational spending meeting easily accessible credit. He points out the lack of financial literacy, the lending frenzy, and the record-low household savings in India as contributing factors to the crisis.
The Reserve Bank of India has raised red flags about the rapid surge in unsecured loans, primarily driven by banks and fintech companies extending credit post-pandemic. The household debt-to-GDP ratio has soared to 40%, nudging the central bank to voice concerns about mounting consumer loans predominantly for non-investment purposes.
Regulators are in damage control mode, urging lenders to strengthen their capital reserves for personal loans. The RBI’s intervention seems to be working; retail lending growth has slowed down to 14% in July, a significant drop from 31% the previous year. Despite these efforts, personal loan delinquencies in India have climbed to 5.1%, signaling a challenging road ahead for borrowers and lenders alike.
Rajeev Jain, CEO of Bajaj Finance, highlights the need for caution in the lending sector, especially in unsecured credit categories, to avoid a potential crisis. India’s shadow banks are projected to face a surge in delinquencies, hinting at higher credit costs in the upcoming years.
As the lending sector grapples with the aftermath of a credit-fueled spree, it is essential for individuals to exercise financial prudence and make informed decisions to navigate these turbulent times. It’s time to prioritize financial literacy, build sustainable saving habits, and approach borrowing with caution to avoid falling into the debt trap. Let’s learn from the past mistakes and pave the way for a more financially secure future.
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