India’s debt domino: Middle-class home loans might be the final piece, warns Saurabh Mukherjea

In today’s India, the dream of a better life is more accessible than ever—but also more dangerous. For the country’s middle class, that dream is increasingly being financed on borrowed money. And according to Saurabh Mukherjea, founder of Marcellus Investment Managers, the consequences are already showing.

Using RBI data, Mukherjea says 5 to 10 percent of middle-class households are now stuck in a debt trap. These aren’t one-off cases—they represent a growing pattern shaped by social pressure, easy access to credit, and pandemic-era behavioral shifts.

“After two years at home during COVID, people were utterly convinced that whatever their financial means are, it doesn’t matter—they too can live the good life,” says Mukherjea in a podcast with the Federal.

The catalyst? Social media’s relentless showcase of luxury lifestyles. Exotic vacations, latest smartphones, stylish homes—it all creates a high-gloss illusion of normalcy. Add in the promise of buy now, pay later, and the middle class starts borrowing to live a life they haven’t yet earned.

“You’re told every minute that you should have the lifestyle of an IPL cricketer. You don’t have to work for it—you can get it on credit,” Mukherjea points out.

At the center of this shift is the India Stack—Jandhan, Aadhaar, Mobile. While it’s a success story in democratizing credit, especially for small businesses, it has also made borrowing dangerously effortless.

“It allows people to take on a ton of debt almost unthinkingly,” Mukherjea notes.

The signs of trouble are unfolding in a predictable pattern. First came defaults among microfinance borrowers. Then, unsecured personal loans began turning sour. Now, credit card NPAs are rising, and issues are surfacing in two-wheeler financing.

“Whenever I see credit cards being handed out at airports, the analyst in me starts worrying,” he says.

So far, home and car loans haven’t cracked—but Mukherjea warns that they’re next if the cycle continues.

Meanwhile, household savings are drying up. RBI data shows net financial savings are at a 50-year low. The middle class is either servicing EMIs or pouring money into stock markets, leaving banks with fewer deposits and households with no buffer.

What’s the way out?

Mukherjea recommends a bold policy response: a 2% rate cut by the RBI, liquidity injection, and a 10–15% rupee devaluation to ease the debt burden and reignite demand.

“If the RBI could act decisively, many of these problems could be solved quickly and in unison.”

Until then, India’s middle class remains caught in a cycle of aspiration-fueled borrowing—with no easy exit in sight.