Common household debt is at a new high! What easy loans mean for the economy and for you

With consumers borrowing to buy everything from cars to cell phones, India’s household debt is estimated to have risen to 15.7% of GDP in March 2018, research by Macquarie shows.

With consumers borrowing to buy everything from cars to cell phones, India’s household debt is estimated to have risen to 15.7% of GDP in March 2018, research by Macquarie shows.

In 2012-13, the proportion was only 11.7%. With more credit history at their disposal, both banks and non-bank finance companies (NBFCs) have been pushing through loans more easily. Total household debt at the end of March 2018, Macquarie calculates, was Rs 26.61 lakh crore.

The change in attitude towards spending, coupled with the EMI (equal monthly fee) culture, experts say, will keep consumer spending intact even when interest rates rise. What is interesting is that the average size of loan notes is falling, suggesting greater inclusion. A recent study by CIBIL, which has a database of about 250 million unique borrowers, found that retail loans in the first quarter grew 25% but the average balance fell 6%. He attributed the drop to the shift in the loan mix to short-term consumer loans such as credit cards, personal loans, and consumer durables. Personal loans are the fastest growing segment and, along with credit cards, dominate volumes, while mortgages dominate outstanding value. The average retail loan balance, as of the end of March 2018, was Rs 4.02 lakh.

While the availability of credit histories has made life easier for bankers, they are also making better use of inside information to target retail customers. Not surprisingly, personal loans outstanding in March 2018 at Rs 19.08 lakh crore rose a strong 18% over the previous year, as data from the Reserve Bank of India reveals.

Private sector banks, in particular, have taken advantage of their clients’ franchises; At a leading bank, 50% of incremental personal loans and 70% of incremental credit card loans were made to existing customers.

However, it is the NBFCs that have been the most aggressive in recent years in accessing the retail loan market. Crisil estimates the outstanding credit of the NBFCs at 21 million lakh rupees in March 2018, 17% more than the previous year; While mortgage loans accounted for a third of the portfolio, vehicle loans accounted for slightly less than a fifth.

The aggression of the NBFCs, which have been able to absorb cheap money in an environment of abundant liquidity and low rates, has generated an increase in market share. The rating agency estimates that the market share of NBFCs (excluding state-owned ones) and housing finance companies (HFCs) has risen to around 17-18% of the total system credit pie, up from 13% in the last five years. “We expect this trend to continue, and its share should reach almost 19-20% by 2020,” said Krishnan Sitaraman, Crisil’s senior director.

It is not just cheap money. Housing credit is expected to grow 18% in the current year, according to Icra, with homes becoming more affordable, especially for first-time buyers, thanks to incentives provided by the government. The good news is that HFC (home finance company) delinquencies are expected to remain within the 1.2-1.5% range.

In a recent analysis of growing consumer leverage in India, Managing Director Swanand Kelkar, Morgan stanley Investment Management noted that at 15.7% of GDP, household debt in India is quite low by emerging market standards, averaging 39%.

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