News

Published: April 26, 2024
Updated: April 26, 2024

The Alarming Rise of Household Debt in India: Reaches 39.1% of the GDP

Understanding the Surge

India is witnessing a concerning trend as household debt has soared to unprecedented levels, raising red flags for the Reserve Bank of India. Economists from Motilal Oswal Financial Services Ltd reveal that household debt reached 39.1% of the gross domestic product (GDP) in the final quarter of 2024, marking a significant increase from the previous year.

The Growth Trajectory

The surge in household debt has outpaced previous records, surpassing the peak observed in the first quarter of 2021. Notably, non-housing loans have been the primary driver of this escalation, marking the sixth consecutive quarter where they have outpaced housing loans.

Implications of Rising Household Debt

The escalation in household debt to 39.1% of GDP signifies that Indian households are shouldering a greater financial burden than ever before. This trend raises concerns about the sustainability of consumer spending and overall economic stability.

Shift Towards Riskier Borrowing

Of particular concern is the shift towards riskier forms of borrowing, notably in non-housing debt. Data indicates that loans for consumer goods and discretionary spending have grown at a faster rate compared to housing loans. This suggests a propensity among consumers to borrow for non-essential purchases, which could exacerbate financial vulnerabilities.

Insights from Credit Bureau Data

Data from CRIF High Mark, a leading credit bureau, provides further insights into the surge in consumer lending segments. Notably, the festive quarter of 2023 witnessed a significant uptick in loans for auto, two-wheeler, personal, and consumer durable purchases.

Consumer Behavior Trends

Consumer durable loans experienced a notable surge, likely driven by festive season discounts on electronics and appliances. Similarly, personal loans witnessed an increase, with a shift towards smaller ticket loans indicating changing consumer preferences.

Addressing the Concerns

The escalating household debt in India, particularly the rise in riskier borrowing, poses significant challenges for economic stability and consumer financial health. Policymakers and financial institutions must closely monitor these trends and implement measures to promote responsible lending practices and financial literacy. Otherwise, the trajectory of household debt could lead to broader economic repercussions in the future.