Synopsis: Household debt in India rose to 42.9% of GDP as of June 2024, primarily driven by an increase in the number of borrowers. Borrowing is largely for consumption, asset creation (e.g., housing, vehicles), and productive activities (e.g., education, agriculture). Two-thirds of loans are held by borrowers with prime or higher credit ratings, reflecting improved credit quality and financial resilience.
Household debt in India has reached 42.9% of GDP as of June 2024, driven by an increase in the number of borrowers rather than a rise in individual indebtedness, according to a recent Reserve Bank of India (RBI) report.
The report highlights that borrowing within the household sector accounts for 91% of total household financial liabilities.
Individuals borrow for three primary purposes: consumption, asset creation, and productive activities.
Consumption loans include personal loans, credit card debt, and loans for consumer durables.
Asset creation comprises mortgages, vehicle loans, and two-wheeler loans, while productive activities involve borrowing for agriculture, business, and education.
Interestingly, borrowing patterns vary across credit risk categories.
Subprime borrowers primarily take loans for consumption, while super-prime borrowers focus on asset creation, particularly housing.
This has led to a significant rise in per capita debt among highly rated borrowers, reflecting a preference for using credit to invest in assets.
The report emphasizes that nearly two-thirds of loans belong to borrowers with prime or higher credit ratings, indicating a shift toward better credit quality.
This trend is viewed positively by the RBI, as it enhances financial resilience and stability.
Despite the rise in household debt, India’s figures remain relatively low compared to other emerging market economies.
At 42.9% of GDP, the country’s household debt level underscores its growing financial inclusion while maintaining a relatively conservative debt profile.
From a financial stability perspective, the rise in debt among highly rated borrowers is encouraging.
The focus on asset creation, coupled with the stable debt levels among other risk categories, indicates a robust and balanced credit ecosystem.
The RBI report also sheds light on the broader implications of evolving borrowing patterns in India.
It suggests that the increase in household debt is a reflection of the nation’s growing financial inclusion and the diverse credit needs of its households.
Conclusion:
The focus on asset creation by highly rated borrowers and stable debt levels across risk categories reflect a positive trend toward financial stability.
While India’s household debt remains low compared to global standards, the trajectory highlights the country’s expanding financial inclusion and diversified borrowing behaviour.
Disclaimer:
