‘The worst time of my life…’: Zerodha’s Nithin Kamath points to rising debt defaults in India

India’s borrowing habits are reaching dangerous territory, warns Nithin Kamath, founder and CEO of Zerodha.

Small-scale personal loans and credit card loans are on the rise, often driven by aggressive marketing through fintech applications. Kamath pointed to a worrying trend: “Delinquencies among this segment that cannot afford loans have started to increase. These delinquencies started appearing in the numbers of banks and NBFCs a few quarters ago. We will find out the magnitude.” The real problem will come in the next few quarters.

Kamath shared CRIF data showing how total personal loans in India now stand at Rs 13.7 lakh crore. Public sector banks bear 38% of this burden, followed by private banks at 33% and non-banking financial companies at 24%.

However, it is the spike in small loans – many of them less than Rs 10,000 – that raises serious concerns. The sector is dominated by NBFCs, which issued 94% of these loans, and their share of new lending rose to 38.7% in H1FY25, up from 33.2% last year.

“The least and most profitable thing you can do with your personal finances is to pay off all your high-interest loans, including credit cards,” Kamath advised.

He also highlighted the psychological impact of debt: “If you are in debt, the psychological effects will show up everywhere… from your personal life to your workplace.”

Small loans are particularly problematic. Among borrowers with loans between INR 10,000 to INR 50,000, nearly 29.3% saw a drop in credit scores within six months of borrowing. Alarmingly, instead of slowing down, these individuals borrowed 62.7% more, increasing their total debt by 37.6%.

Default rates are rising faster in smaller cities, where the percentage of loans delinquent in the 31- to 180-day range jumped from 6.8% to 8% in one year. Loans worth less than INR 10,000 saw 360-day delinquencies rise to 39.7%, compared to 24.5% last year.

Talking about his personal experience, Kamath said, “The worst times in my life were when I owed money to spend on things I didn’t really need. The first lesson of personal finance is to borrow only when you are sure that it can generate a return greater than the cost of the money.”

These trends occur against the backdrop of a broader expansion in the credit market. For example, the unsecured business loan segment grew by 43.5% last year, reaching Rs 7.8 lakh crore. But delinquencies are also on the rise in this category, especially in small cities where economic growth has not kept pace with credit expansion.

Kamath’s advice seems clear: “Making sure you’re debt-free should be the first thing you do, even before saving and investing.”