India’s fintech boom is loaded with moral hazard and could trigger a crisis at the slightest shock

India’s economy is growing fast. The speedometer looks impressive. The engine, however, is increasingly running on debt.

The Reserve Bank of India’s (RBI) Financial Stability Report published in December has a line that ought to cause senior bankers to spill their coffee: retail credit is no longer a tail risk; it has moved to the core. This is the regulatory equivalent of observing that smoke is now a structural feature of the building but evacuation might be premature.Unsecured retail loans account for 53.1% of total retail slippages at scheduled commercial banks, even as their retail gross non-performing assets (GNPA) ratio sits at a comforting 1.8%. This is finance’s oldest optical illusion: fixate on the average while the distribution quietly sharpens its knives.

It always works—right up until it doesn’t. Crises do not arrive waving banners marked “excess credit” but disguised as innovation. As Adair Turner warns in Between Debt and the Devil, credit can grow to socially useless or dangerous levels long before it gets inflationary.

Stable prices can end up as camouflage, as they often do. India’s household credit boom fits this description. Unsecured retail credit is growing at high double-digit rates, comfortably ahead of nominal GDP.

Personal loans, credit cards and gold loans are doing the heavy lifting, while credit that builds productive capacity jogs behind. Banks have retreated to the retail foxhole not by choice, but because corporate credit demand is anaemic. In a world of thin margins, the ‘high-yield’ siren song of a 24% annual rate personal loan is irresistible to a balance sheet starved of industrial capital expenditure.