Why India's Middle Class Can't Save Money? - Saurabh Mukherjea

India’s middle class is the world’s most indebted middle class, Saurabh said. No other country’s middle class has taken on this much debt.

The Founder of Marcellus Investment Managers had just walked through the wage stagnation data. The natural question was how a middle class with frozen income was sustaining its lifestyle. His answer was that it was not sustaining it. It was borrowing to keep up appearances.

The RBI Data

Saurabh’s core claim rests on official Indian data.

Every 6 months, Saurabh said, RBI publishes something called the Financial Stability Review. If you look at the last 3 years of the FSR, RBI is saying that the middle class - our retail borrower - is increasing their borrowing at 20-22% per year.

Twenty to twenty-two percent annual growth in retail borrowing, while wages are frozen. The gap has to be filled by debt.

In our book, Saurabh said, India’s middle class is the world’s most indebted middle class. No other country’s middle class holds this much debt on their books. This problem was not there until COVID. It has emerged in the last 5 years.

The Savings Collapse

Saurabh confirmed with a second data point.

RBI data shows the same picture, he said. Household savings have collapsed. They are running at around a 50-year low. In cross-country comparison, we have left China, America, France, Germany far behind on the debt we have taken on.

The 50-year low in household savings is striking. India, historically a nation of savers with savings rates that sometimes exceeded 30% of income, has become a nation of borrowers.

The Social Media Blame

Saurabh then asked the natural question.

Why is a person doing this, he said. Jobs are not there. Income is suppressed. But humans are smart. They know their income is not growing. So why are they borrowing so much?

His answer was direct.

In our book Breakpoint, Saurabh said, we blame social media for it.

The Mechanism

Saurabh walked through the specific mechanism.

The world’s cheapest mobile broadband is available in India, he said. Basically we get mobile broadband for free. Compared to the West, we get it at 1/140th the cost. Everyone has smartphones. And the amount of time Indians spend on the internet - no other country is anywhere near us.

The combination is what makes India distinctive. Cheap access. High penetration. High usage. The population is essentially always online.

The Aspiration Effect

Then came the specific mechanism Saurabh named.

Social media brainwashes people for 4-5 hours a day, he said. It tells them - your income may or may not grow, but your lifestyle should be like Virat Kohli or Anushka. You should live grandly. Your clothes should be fine. Your food should be top class. If a foreign band comes - throw Rs 10-15,000 to go to the concert.

The mention of Virat Kohli and Anushka Sharma is not a criticism of them. They are being used as representatives of the aspirational lifestyle that Indian social media constantly shows. The specific individuals rotate. The aspirational template stays the same.

Saurabh added the technical point.

The apps in social media know exactly how to psychologically pull a person in, he said. Aspiration has been raised sharply. People have been made to want to spend more than they earn.

The Result

The result is now visible in the data.

Our middle class has completely drowned, Saurabh said. Personal loans are the fastest growing category. In the last 5 years, the personal loans balance in India has tripled.

The specific use case is worth pausing on.

Twenty-seven percent of personal loans are to go on holiday, Saurabh said. The biggest use case of personal loans is to take a holiday.

More than a quarter of India’s personal loan debt is funding holidays.

The Bank Manager Anecdote

Saurabh gave a specific anecdote from his research.

When we were writing the book, Saurabh said, many bank managers said to me - take a loan and go on holiday. Go to Mauritius. If not that, at least Mussoorie. I said - maybe someday, not now. They said - no, take it now. Coldplay is coming - take a Rs 15,000 loan and go dance at the Coldplay concert.

The bank manager’s job has changed. It is no longer just approving loans. It is actively pushing loans to people who did not come asking. The push is now part of the standard sales script.

The Hyperscaler Ad

Saurabh then cited a specific advertisement.

Right now during the World Cup football matches, he said, an AI advertisement is running. It is from an American hyperscaler. Coincidentally, that stock is in our global portfolio.

The self-disclosure is worth noting. Saurabh acknowledges that his firm owns the stock of the company running the advertisement he is about to critique.

In that ad, he said, a young girl comes. She says - I was searching on social media. I wanted to buy something. I did not have the money. But no problem. I clicked this app. Quickly I borrowed some money. I did not have to fill anything.

The advertisement is a compressed version of the entire mechanism Saurabh is describing. The scrolling. The aspiration. The absence of savings. The seamless borrowing. The frictionless purchase. All packaged as freedom.

The 700 Loans Finding

Saurabh then delivered the most striking observation of the segment.

While writing the book, he said, we met people who have 700 personal loans. Seven hundred. And people with 50-60 personal loans - we were meeting them regularly.

Seven hundred personal loans on a single person’s credit record is not a normal number. It is the sign of a system that has moved from lending to entrapment.

This has become the reality of India, Saurabh said. The middle class has drowned in debt. Getting out of it will be very difficult.

The 10% Default Prediction

Saurabh closed with a specific forward-looking claim.

In the next 2-3 years, he said, I think an economic problem will emerge. Around 10% of the middle class will default on their loans.

Ten percent default is not a marginal number. It represents millions of households. The default cascade will hit personal loan portfolios at banks and NBFCs. It will hit consumption patterns. It will hit the aspirational economy driven by borrowing.

What This Reveals

Three things from this segment will stay with me.

The debt trap is systemic. India’s middle class is not accidentally in debt. The debt has been engineered by a combination of cheap internet, aspirational social media content, aggressive personal loan marketing, and frictionless credit apps. Each layer of the system is optimized for extraction.

The specific numbers are alarming. Personal loans tripled in 5 years. 27% of personal loans for holidays. Household savings at 50-year low. World’s most indebted middle class. Structural facts.

The 10% default prediction is imminent. If Saurabh is right, the next 2-3 years will see a large cohort of middle class Indians defaulting on personal loans.

The Investment Implications

Saurabh’s analysis has implications for financial services investing that are worth extracting.

If personal loan portfolios at banks and NBFCs are heading toward a 10% default event, the equity of institutions with heavy concentration in unsecured retail lending may be significantly overvalued. Provisioning has not fully priced in the coming cycle.

Fintech lenders that expanded aggressively during the 2020-2024 personal loan boom are likely most exposed. Their books are recent, their portfolios are largely unseasoned, and their underwriting standards have been optimized for growth over risk.

The consumption sectors that benefited from debt-funded discretionary spending - travel, luxury retail, event ticketing, high-end consumer goods - will see revenue shocks as the default cycle plays out.

The Universal Insight

The Saurabh framework is not unique to India, but India is showing the pattern in a specific extreme form.

Every economy where mobile-first consumer credit has scaled rapidly is seeing similar dynamics. Cheap internet. Aspirational content. Frictionless credit apps. Rising personal loan balances. Eventually, defaults.

What is specific to India is the combination of scale, speed, and the fact that middle class wage growth has not kept pace. Other economies with similar credit expansion at least had wage growth alongside. India has had aggressive credit expansion against a frozen wage backdrop. The math cannot hold.

The Real Question For Readers

The uncomfortable question the segment raises is how much of your income is going to service debt right now.

If you are paying multiple EMIs, carrying credit card balances, and taking new personal loans to fund holidays or lifestyle purchases - you are the specific person Saurabh is describing.

The way out is not another financial product. It is honest math about what you earn, what you owe, and what you actually need. The specific decisions vary by situation. The underlying discipline is universal.

Watch the full episode here: