New Delhi: India’s household debt has reached a record high of 39.1% of the gross domestic product (GDP) in the third quarter of fiscal year 2024, according to an analysis by Motilal Oswal.
This is higher than the previous peak of 38.6% in the fourth quarter of FY21. This increase, estimated at 16.5% year-on-year in Q3FY24, is mainly driven by faster growth in non-housing debt, the report said.
In addition, net financial savings appear to have dropped to their lowest, at 5% of the GDP, The Financial Express had reported in September 2023, citing Reserve Bank of India data.
In contrast, corporate debt increased marginally.
Corporate borrowings have risen by just 6.1% year-on-year in Q3FY24, easing to a 15-year low of 42.7% of GDP, the newspaper reported.
While it is being suggested that higher leveraging is due to home loans, it’s actually non-housing debt that is increasing at a faster pace. Non-housing debt comprises 72% of the total household debt.
In the December, 2023 quarter, for instance, the non-housing debt increased by 18.3% y-o-y, housing loans went up by 12.2%.
Unsecured personal loans by banks have been growing, with ICICI Bank leading the pack.
This, despite the RBI increasing the risk weighting on unsecured lending, including personal loans and credit card loans, by 25 percentage points (from 100% to 125%). That would increase the cost on lenders. However, it appears that the measure didn’t yield the desired results.
As of December 2023 quarter, ICICI Bank has the highest exposure in the unsecured personal loan segment at 13.8%, while at the system level it is 8.7%, The New Indian Express reported, citing a UBS Securities, RBI, and credit bureaux analysis.
This situation is a cause for concern because despite a significant growth in the GDP, household debt remains elevated, and savings are low.
In the December 2023 quarter, the estimated increase in corporate debt was almost as weak as the 5.5% y-o-y rise reported in the second quarter of FY24. It was lower than the 10% y-o-y reported in Q3FY23.
Economists have attributed the sharp dip in savings, even as debt levels remain elevated, to low incomes and a slowdown in consumption in the economy.
