RBI: Household debt remains sustainable

MUMBAI: A study published by the RBI has said that despite the increase in the share of personal loans in bank credit, financial liabilities of households in India remain sustainable. While personal loans now are a major chunk of bank credit, they are still a fraction of household savings in deposits and insurance.
A study on the financial liabilities of the household sector in India published in the RBI bulletin said that total borrowings of the household sector from institutional sources have risen by 28.3% from Rs 62 lakh crore in March 2019 to Rs 79 lakh crore in September 2021. The share of household borrowings from institutions (commercial banks, NBFCs, housing finance companies and co-operative banks) increased to 35.4% of GDP in March 2020 from 32.9% in March 2019.
The share of personal loans in bank credit overtook the share of credit to the industry in FY22, mainly due to the surge in home loans.

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“During the first phase of the pandemic-induced lockdown, households were striving hard for survival and borrowed to fulfil their basic needs due to the loss of jobs, which brought up the ratio acutely to 38.5% within a quarter (June 2020). The rising trend continued till March 2021 when it stood at 39.5%. Thereafter, the ratio started declining,” the study said.
India’s credit-to-GDP ratio of households is catching up with its peers among emerging economies. It is lower than China (61.7%) but higher than Russia, Brazil and South Africa. While borrowings have gone up, the share of households in gross domestic savings has also increased to 78.5% in FY21 from a low of 57.8% in FY16.
In 2019-20, the financial liabilities of the household sector grew faster (12.2%) than their financial assets (6.9%), whereas in 2020-21, financial assets (17.5%) rose more than the financial liabilities (11.3%) in the sector. On a stock basis, gross financial liabilities remained less than 40% of their gross financial assets during the last decade.
The study draws a vulnerability index reflecting household debt’s sustainability. According to the study, the vulnerability was at a high of 5.2% between FY91 to FY95 and was lowest between FY96 to FY02 at 3.4%. Between FY13 to FY20, it was 4.8%. “The sustainability index shows that borrowing of households remained within sustainable levels in the last three decades, including the times of stress such as Covid,” the study said.

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