Gen Z’s BNPL Habit Is Quietly Inflating India’s Unsecured Debt — And the RBI Is Watching Closely
A generation that grew up with one-tap payments is now treating credit the same way. Buy-now-pay-later (BNPL) options, credit cards and small personal loans have become the default way many young Indians fund phones, sneakers, concert tickets, weekend getaways and festival outfits. The convenience is real. The bill arrives later, often split into instalments that feel manageable in the moment. What worries the Reserve Bank of India is the cumulative effect: a steady rise in unsecured, consumption-driven borrowing concentrated among younger, thinner-file borrowers.
India’s household debt has climbed to elevated levels by recent standards. Non-housing retail loans — the consumption segment that includes personal loans, credit cards, consumer durables and related products — accounted for 58.4 per cent of total household borrowings as of March 2026, up from 54.9 per cent a year earlier. These loans have grown faster than housing, agriculture or business credit. Average outstanding debt per borrower has risen meaningfully over the past several years. Gold loans have exploded, jumping from roughly ₹75,000 crore in March 2022 to ₹4.61 lakh crore by March 2026. Other personal loans outstanding more than doubled in the same period to ₹17.32 lakh crore.
Of the roughly 890 million credit-eligible Indians, close to one-third have taken a loan, have one running, or are servicing EMIs or credit-card bills in the past year. The share of the credit-eligible population that is actively using credit has risen from about 11 per cent a decade ago to around 28 per cent. Younger cohorts form a growing slice of that base. Their first formal credit now often arrives in the early-to-mid 20s through credit cards, small-ticket personal loans or BNPL rather than the secured home or auto loans that earlier generations typically started with in their 30s or 40s.
The BNPL and Small-Ticket Wave
BNPL and small personal loans under ₹50,000 sit at the centre of the shift. Fintech platforms now hold a 56.8 per cent market share in this segment after expanding credit by 41.6 per cent year-on-year — more than double the overall segment’s growth. About 70.5 per cent of fintech loan books are unsecured, and nearly half of those loans go to borrowers under 35. Delinquencies in these small-ticket fintech loans stood at 6.4 per cent as of March 2026, higher than the rates seen at banks and traditional NBFCs.
These products are marketed as frictionless lifestyle tools rather than formal debt. Introductory interest-free periods, instant approvals and seamless checkout integration make them feel different from a bank personal loan. Many users run multiple BNPL limits, credit cards and small loans simultaneously. Because individual ticket sizes are modest, the total leverage can remain invisible to any single lender until repayment pressure builds. Credit-bureau data shows the share of over-leveraged consumers rose sharply in recent years before easing somewhat after industry interventions; the concentration remains higher among younger borrowers.
Real-world behaviour illustrates the trend. Young people have financed international concert trips and music-festival travel with credit cards and personal loans. Estimates put concert-related spending in the last two years in the ₹1,600–2,000 crore range, with a heavy Gen Z footprint. Travel and experience spending often claims a meaningful share of monthly income for this cohort. More than a quarter of personal loans in some recent periods have been linked to travel. The pattern is clear: debt is increasingly used to fund immediate consumption and experiences rather than asset creation.
Why the RBI Is Concerned
The central bank’s latest Financial Stability Report acknowledges that risks to the financial system from household lending remain contained for now. Gross non-performing asset ratios stood at 0.7 per cent for secured retail loans and 1.7 per cent for unsecured retail loans at end-March 2026. Overall banking asset quality is strong by historical standards. Yet the RBI has explicitly flagged household debt accumulation — particularly among lower-rated borrowers — as requiring “close monitoring.” It has noted that risks to asset quality could rise if economic conditions weaken, for instance through the impact of the West Asia conflict on cash flows and confidence.
Several specific vulnerabilities stand out. First is the composition of debt. Consumption loans now form nearly half of household borrowings. Unsecured retail lending still accounts for a significant share of retail credit and a meaningful portion of fresh stress in some portfolios. Second is the borrower profile in the fastest-growing digital segments: younger, often new-to-credit or thin-file customers whose income documentation may be incomplete and whose repayment capacity is more sensitive to job-market fluctuations in the gig, IT and startup ecosystems. Third is the ease of stacking multiple unsecured facilities. Without a fully consolidated real-time view, total leverage can outpace any individual lender’s risk models.
Higher delinquencies in the fintech small-ticket book, rising credit-card overdue trends in some datasets, and the historical pattern of over-leverage among younger consumers all point in the same direction. Short loan tenures common in BNPL and small personal loans mean repayment pressure arrives quickly if income is interrupted. A single default, even on a modest sum, can damage a credit score and close doors to future formal credit.
Regulatory Backdrop and the Road Ahead
The RBI has already tightened digital lending norms, restricted certain prepaid-instrument and default-loss-guarantee structures, demanded greater transparency on fees and interest, and required direct disbursal and repayment flows between regulated entities and borrowers. Recent draft proposals targeting revolving credit products at NBFCs aim to reduce the risk of evergreening, where fresh drawdowns are used to service older obligations. Supervisory focus on concentration risks and underwriting standards for unsecured books has increased.
BNPL and digital credit are not inherently problematic. Used within means, they can smooth cash flow, help build credit histories and expand formal financial inclusion. The concern arises when they become the primary way a generation funds lifestyle spending beyond current income, layered on top of other unsecured products, in an environment of still-elevated household leverage relative to recent history.
For now the system has buffers. Capital and liquidity at banks remain comfortable, and overall NPA ratios are low. The danger is not an immediate crisis but a gradual build-up of pockets of stress that could amplify if growth slows or employment softens. The RBI’s message is measured but clear: the current trajectory of consumption-led, unsecured borrowing — heavily influenced by the habits of younger Indians — needs continued vigilance. Growth in credit is welcome when it supports sustainable demand; growth that outruns repayment capacity is not. How lenders, platforms and borrowers adjust in the coming quarters will determine whether this remains a manageable feature of India’s credit expansion or becomes a more serious vulnerability.
About The Author
