Are you also planning to take a loan in the coming days? So it is important to keep some things in mind before making such a big decision. The financial strain on individuals from middle and high-income brackets in the country is on the rise. Over the last three years, there has been a notable increase in the proportion of outstanding personal loans among those earning between 5 to 15 lakh and those making over 15 lakh annually. According to data from the Reserve Bank of India, the share of personal loans for these income groups has surged by approximately 11 percent. This indicates a growing number of borrowers, along with an increase in those struggling to make timely repayments. Interestingly, the largest segment of unsecured personal loans is held by individuals earning less than five lakh.
The financial stability report published by the RBI in December 2024 highlighted that the share of individuals with outstanding personal loans in the 5 to 15 lakh income range rose by 11 percent as of September 2024 over the past three years. In contrast, the share for those earning above 15 lakh saw a 9 percent increase.
Most unsecured personal loans are concentrated in this area
Conversely, the share of individuals earning up to five lakh has only grown by a modest 1 percent. This slow growth can be attributed to the fact that many unsecured personal loans are tied up with borrowers in this income category. Additionally, there has been a significant 20 percent drop in outstanding loans for individuals without a stable income.
Banks have implemented numerous precautions
The primary factor behind this trend is that banks have exercised caution in lending to individuals without a regular income over the past three years. Typically, these borrowers receive smaller loans for shorter durations. Following the RBI’s advice to be vigilant with such loans, banks have improved their recovery rates for small loans and have been more careful in approving new ones.
People earning up to Rs 5 lakh are in deeper debt
Those in the income bracket of less than five lakh have the highest amount of unsecured personal loans, and this hasn’t changed from March to September 2024. Back in March, around 42% of unsecured loans were held by this group, and by September, the same percentage of bad loans was still being issued. However, this figure was over 52% in March 2023, indicating a decline over the past year and a half.
Here’s a breakdown of outstanding personal loans by income class:
Year | Less than 5 lakh | 5-15 lakh | More than 15 lakh
— | — | — | —
March 2022 | 42 | 37 | 10
March 2023 | 52 | 42 | 12
March 2024 | 42 | 32 | 8
September 2024 | 42 | 32 | 8
