India’s Attempt to Imitate the US Credit Boom Has Come Without a Safety Net

As more and more Indians turn to debt to fuel consumption and sustain increasingly aspirational lifestyles, mostly in an attempt to imitate the consumer economy of the United States, they are doing so in a country that, unlike the US, offers retail borrowers little by way of support.

The trend is now prompting calls for intervention.

“Indians carry far less debt than Americans overall, yet lose just as much of their monthly income to EMIs because our loans run for shorter periods and charge higher interest rates,” Ritesh Srivastava, founder and chief executive officer of FREED, a liability-management platform, tells Outlook Business. “Borrowing has raced ahead of both incomes and financial literacy.”

A large share of India’s much-touted consumption story now runs on borrowed money. Non-housing retail credit, including personal loans, credit cards and buy-now-pay-later products that fund weddings, phones, travel and month-end gaps, has grown at over 21% a year and now accounts for 58.4% of all household debt, according to the RBI’s Financial Stability Report. To understand the nature of this shift, consider the US, where close to 70% of household debt there consists of long-tenure mortgages that finance the acquisition of an asset.

Over the last decade or so, India has seen substantial growth in its lending infrastructure, which has, without doubt, helped millions, from purchasing quality of life products to getting through an emergency. Loans have become faster and more accessible than ever before. But the system, at present, is largely designed to put money out, with little in place to help when a loan goes bad, leading to suffering for both the lender and the borrower.

Lenders, including public, private, foreign and small finance banks, had to write off retail loans worth ₹45,404 crore in 2024–25, according to data tabled by the Ministry of Finance in Parliament in March this year. More importantly, that was higher than the write-offs in any other sector, including business and agriculture.

Borrowers, on the other hand, who are taking new loans just to pay off older ones, and whom Srivastava, through FREED, is trying to help, are having an equally painful experience.

“Today, the experience turns harsh quickly, and what should be an orderly recovery too often becomes harassment. The toll reaches well beyond money, into sleepless nights, EMIs hidden from family, and a shame that isolates people at the exact moment they need help,” says Srivastava.

“Nobody wins: the lender writes off most of the debt, and the borrower is pushed out of formal credit, unable to borrow again and left distrusting the whole system.”

This is where the difference between India and the US becomes particularly important.

Bringing them Back

Just as India today is embracing credit cards and personal loans to maintain social stability in an economy always short on jobs and income growth, the US went through a similar cycle of rising borrowing and defaults decades ago. The difference was that, alongside this expansion of credit, it developed a debt-relief industry, in which liability-management platforms helped borrowers negotiate down what they owed and settle their debts on terms they could realistically afford, while also providing an alternative to harassment and coercive recovery practices.

To ensure that this promise of relief did not itself become another source of exploitation, federal regulators such as the Federal Trade Commission and the Consumer Financial Protection Bureau stepped in with firm rules. The most consequential was a ban on companies charging borrowers before a debt had actually been settled. That single shift, from upfront fees to payment for results, helped separate genuine players from scams and gave borrowers greater confidence to seek help when they were in financial distress.

Meanwhile, India has neither a large pool of liability-management platforms such as FREED, nor a policy framework for resolving individual debt comparable to the one it has developed for companies, including formal recognition and operating guidelines for legitimate debt-relief providers.

This missing debt-relief industry, Srivastava warns, could hurt the economy in ways that are not immediately apparent.

“A borrower pushed out this way rarely comes back. India already has only about a quarter of its adults inside formal credit, so every exclusion like this works against financial inclusion and shrinks the base that future credit growth depends on,” says Srivastava. “Credit is a good thing, and India’s growth needs it, but it only stays positive when there is a safety net for when things go wrong. Building that safety net is what a debt-relief industry is for, and that is why it matters for borrowers, lenders and the economy alike.”

The question then is, if the safety net takes longer to build, what other options does India have?

Prevention before Cure

As an early player in a yet-to-develop industry, Srivastava believes his firm has a responsibility to demonstrate tangible outcomes that can attract more businesses into the sector and, in turn, build the case for greater policy support from the government. To that end, FREED recently launched an EMI Score on its platform, a borrower-side measure that assesses income stability and quality, monthly savings, and total loans and EMIs, and places each borrower on a scale of 0 to 100. The score is designed to show borrowers where they stand financially and how much debt they can comfortably carry.

In other words, the idea is to catch stress early, while there is still room to act, so fewer borrowers ever reach the point of crisis.

When asked how the firm plans to promote its usage at scale, Srivastava says, “We will get there by keeping it effortless, a free check that takes about a minute, by leading with honesty rather than selling, since the score will happily tell a healthy person they are fine and need nothing from us, and by meeting borrowers where decisions actually happen, through educators, creators, and partnerships over time.”

Where the problem of rising retail loans has been finding space in the speeches of government officials, both in New Delhi and Mumbai, the public discussion around ways to deal with its source and aftermath remains inadequate, making the Indian reflection of the US credit boom a dangerous imitation game.

There is, indeed, a long road ahead for both India and early players like FREED to build a system that can protect retail borrowers, and the consumer economy at large, from falling into a spiral of debt and exclusion.