Health Costs — The Hidden Personal Loan Driver
A new study by the Reserve Bank of India's Department of Economic and Policy Research, released on March 10, found that 11% of personal loan borrowers cite medical expenses as the primary end-use of their loan — making it the third-largest category after home improvement (19%) and debt consolidation (15%). In metro cities, the proportion rises to 14%, and in the 30–45 age cohort, it reaches 17%.
Insurance Coverage Gaps
The data underscores a stark reality: a significant portion of the Indian middle class remains under-insured or uninsured against health risks. Despite rapid growth in retail health insurance over the past five years, an estimated 380 million working-age Indians — roughly 47% of the labour force — do not have any form of health insurance, according to IRDAI data. The 37 million salaried employees who do have employer-provided group health cover often find it insufficient for critical illness or major surgeries.
The Borrowing Trap
Unlike home loans or car loans where assets provide collateral and a psychological benefit, medical loans often trap borrowers in a debt cycle. The average medical personal loan in the RBI study was ₹2.8 lakh at 14.5% interest, with a 36-month tenure — implying an EMI of approximately ₹9,700/month and a total interest cost of ₹50,000. For a household earning ₹60,000–₹80,000/month, this represents a significant ongoing burden.
Policy Implications
The RBI study recommends expanding PM-JAY (Pradhan Mantri Jan Arogya Yojana) coverage to include the "missing middle" — households above the BPL threshold but without employer insurance — and mandating that all personal loan applications above ₹2 lakh include a financial counselling check if the stated purpose is medical. The Finance Ministry is expected to review these recommendations as part of the Union Budget for FY2027-28.
