Diwali: India's festive boom runs on credit

As millions celebrated Diwali across India, cash registers rang to the sound of an unprecedented consumer spending boom. Auto dealerships, electronics retailers, and jewellery stores reported record sales, buoyed by the fastest economic growth among major global economies. Yet examining the financing mechanics behind the festive euphoria reveals that India’s retail consumption is increasingly running on unhedged consumer credit.

The Unsecured Credit Boom

Commercial banks and non-bank financial companies (NBFCs) have expanded unsecured personal loan and credit card portfolios at annual rates exceeding thirty per cent. The Reserve Bank of India has grown increasingly uneasy, hiking risk weights on unsecured consumer loans to force banks to allocate more regulatory capital against consumer credit. Fueling consumption via high-interest personal debt creates systemic vulnerabilities when cyclical momentum slows.

India’s vibrant festive retail boom is an impressive display of economic dynamism, but financing consumption through runaway unsecured credit risks planting the seeds of future financial distress.