'Affordable today, distress tomorrow': ISB professor's warning for Indian home loan borrowers
Tantri contrasted India with the US, where fixed-rate mortgages dominate the housing market. The Federal Reserve Bank of New York has noted that fixed-rate mortgages dominate the US mortgage market
- Sep 1, 2026,
- Updated Sep 1, 2026 8:25 PM IST
India’s growing household debt is raising concerns over how much interest-rate risk is being transferred to borrowers, particularly through floating-rate loans.
Prasanna Tantri, Associate Professor of Finance at the Indian School of Business (ISB), has highlighted the issue while comparing India's housing finance model with that of the US.
RBI FSR flags rise in household debt
According to the RBI's Financial Stability Report in June this year, household-sector debt reached 45.5% of GDP by September 2025, up from 41.3% at the end of March 2025. The level had remained above the five-year average of 42.9% of GDP since September 2023.
The RBI said the increase was driven primarily by non-housing retail loans, which accounted for 58.4% of total household borrowings as of March 2026. Consumption-related loans made up nearly half of household borrowings, followed by productive-purpose loans, while borrowing for asset creation expanded at a relatively slower pace.
At the same time, the central bank said borrower profiles have improved, with the share of prime and above-rated borrowers rising in both outstanding credit and borrower numbers.
DON'T MISS: Beyond basic property price: What's the real math of buying a second home
ISB professor warns about floating-rate risk
Tantri said the structure of Indian lending means households bear a larger share of interest-rate risk than borrowers in some advanced economies and it is the time to end it.
"In India, home loans are predominantly floating-rate, transferring interest-rate risk to households. Borrowers access affordability using today’s EMI without fully internalising how much it could rise. Our near-zero real-rate policy may make loans appear affordable today while creating household distress when rates rise. It is time to end it."
He further cautioned that borrowers often fail to consider a future increase in EMIs. “The problem is borrowers don't price in the possibility that EMIs can go up later; this creates distress when they go up. When interest rates are low, every loan we give is like a teaser loan.”
ALSO READ: First-time homebuyers beware! Five common home loan traps that could cost you big
Why the US model is different
Tantri contrasted India with the US, where fixed-rate mortgages dominate the housing market. The Federal Reserve Bank of New York has noted that fixed-rate mortgages dominate the US mortgage market, while the Dallas Fed says most US residential mortgages have 30-year fixed-rate terms.
This means an existing US homeowner with a fixed-rate mortgage generally does not see their monthly principal-and-interest payment rise simply because the Federal Reserve raises rates. The interest-rate and refinancing risks are instead absorbed elsewhere in the mortgage-finance system.
India’s growing household debt is raising concerns over how much interest-rate risk is being transferred to borrowers, particularly through floating-rate loans.
Prasanna Tantri, Associate Professor of Finance at the Indian School of Business (ISB), has highlighted the issue while comparing India's housing finance model with that of the US.
RBI FSR flags rise in household debt
According to the RBI's Financial Stability Report in June this year, household-sector debt reached 45.5% of GDP by September 2025, up from 41.3% at the end of March 2025. The level had remained above the five-year average of 42.9% of GDP since September 2023.
The RBI said the increase was driven primarily by non-housing retail loans, which accounted for 58.4% of total household borrowings as of March 2026. Consumption-related loans made up nearly half of household borrowings, followed by productive-purpose loans, while borrowing for asset creation expanded at a relatively slower pace.
At the same time, the central bank said borrower profiles have improved, with the share of prime and above-rated borrowers rising in both outstanding credit and borrower numbers.
DON'T MISS: Beyond basic property price: What's the real math of buying a second home
ISB professor warns about floating-rate risk
Tantri said the structure of Indian lending means households bear a larger share of interest-rate risk than borrowers in some advanced economies and it is the time to end it.
"In India, home loans are predominantly floating-rate, transferring interest-rate risk to households. Borrowers access affordability using today’s EMI without fully internalising how much it could rise. Our near-zero real-rate policy may make loans appear affordable today while creating household distress when rates rise. It is time to end it."
He further cautioned that borrowers often fail to consider a future increase in EMIs. “The problem is borrowers don't price in the possibility that EMIs can go up later; this creates distress when they go up. When interest rates are low, every loan we give is like a teaser loan.”
ALSO READ: First-time homebuyers beware! Five common home loan traps that could cost you big
Why the US model is different
Tantri contrasted India with the US, where fixed-rate mortgages dominate the housing market. The Federal Reserve Bank of New York has noted that fixed-rate mortgages dominate the US mortgage market, while the Dallas Fed says most US residential mortgages have 30-year fixed-rate terms.
This means an existing US homeowner with a fixed-rate mortgage generally does not see their monthly principal-and-interest payment rise simply because the Federal Reserve raises rates. The interest-rate and refinancing risks are instead absorbed elsewhere in the mortgage-finance system.