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 ratio was just 11.7%. With more credit history at their disposal, both banks and non-banking financial companies (NBFCs) have been pushing through loans more easily. The total household debt at the end of March 2018, Macquarie estimates, was Rs 26.61 lakh crore.
The attitudinal shift towards spending, coupled with the EMI (equated monthly instalment) culture, experts say, will keep consumption spends intact even when interest rates rise. What’s interesting is that the average ticket size of loans is falling suggesting an increasing inclusiveness. A recent CIBIL study — which has a databases of close to 250 million unique borrowers — noted that retail loans in Q1grew 25% but the average balance fell by 6%. It attributed the decline to the change in the loan-mix towards short duration consumer loans like credit cards, personal loans and consumer durable loans. Personal loans are the fastest-growing segment and together with credit cards dominate volumes while mortgages dominate the outstanding value. The average retail lending balance, at 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 better utilising in-house information to target retail customers. It’s not surprising that the outstanding personal loans in March 2018 at Rs 19.08 lakh crore, were up a sharp 18% over the previous year, as data from Reserve Bank of India reveal.
Private-sector banks in particular have leveraged their customer franchises; at one leading bank 50% of the incremental personal loans and 70% of incremental credit card loans were given to existing customers.
However, it is the NBFCs which have been more aggressive over the past few years in tapping the retail loan market. Crisil estimates the credit outstanding of NBFCs at `21 lakh crore in March 2018, up 17% over the previous year; while home loans made up a third of the portfolio, loans to buy vehicles accounted for just under the fifth.
The aggression of NBFCs — that have been able to mop up money cheap in an environment of abundant liquidity and cheap rates — has resulted in a gain in market share. The ratings agency estimates the market share of NBFCs (excluding state-owned) and housing finance companies (HFCs) has increased to around 17-18% of the total system credit pie, up from 13% over the past five years. “We expect this trend to continue, and their share should reach to nearly 19-20% by 2020,” Krishnan Sitaraman, senior director, Crisil said.
It’s 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 government. The good news is that delinquencies for HFCs (housing finance companies) are expected to remain range-bound between 1.2% -1.5%.
In a recent analysis of rising consumer leverage in India, Swanand Kelkar, managing director, Morgan Stanley Investment Management noted that at 15.7% of GDP, household debt in India is fairly low by Emerging Market standards for which the average is 39%.