Household debt at 7-year high as lenders hold back on loans to industry

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12/14/2018
Household debt at 7-year high as lenders hold back on loans to industry
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2018 11:02
AM IST | Source: Moneycontrol.com
Household debt at 7-year high as lenders hold back on loans to
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Banks have been relatively generous in loosening their purse strings for unsecured
personal loans, adding to the liabilities of households
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Despite a rise in the financial
assets of households, Indian
families are more indebted than
they were at any point in the past
seven years. The financial
liabilities of households peaked in
MUST LISTEN
FY18, at 4 percent of their
disposable income, according to
the Reserve Bank of India’s (RBI)
Annual Report
(https://rbidocs.rbi.org.in/rdocs/AnnualReport/PDFs/0ANREPORT201718077745EC9A874DB38C991F580ED14242.PDF)
for 2017-18.
The sudden spike in gross national disposable income (GNDI) comes after five consecutive years of
households tightening their belts and scaling down on debt. Between FY12 and FY17, the gross debt was
shaved off in an incremental manner, from 3.2 percent of disposable income to 2.4 percent.
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12/14/2018
Household debt at 7-year high as lenders hold back on loans to industry
Households chipped away at their liabilities as the economy expanded. However, the fall in 40 basis points
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between FY16 and FY17 should be viewed in consonance with demonetization, a force majeure event that
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shook the financial world. On November 8, 2016, the government decided to invalidate high value currency
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notes as legal tender, a move that added to the stress on the banking sector, whereby it desisted from issuing
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However, lending picked up in FY18, with a correction in real estate prices
spurring demand in the real estate sector. Banks have also been relatively
[email protected] I New loan
pricing regime
generous in loosening their purse strings for unsecured personal loans, adding
(https://www.moneycontrol.com/news/business/economy/macromoneycontrolto the liabilities of households.
i-new-loan-pricing-regime3292891.html)
The RBI’s Annual Report also provides documentary evidence that personal
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and foreign vacations. The share of personal loans to the total liabilities of
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households has increased by 5.4 percentage points, from 19.4 percent at the
end of FY15 to 24.8 percent in March 2018.
For the same time frame, outstanding non-food credit expanded by 63 percent,
(https://www.moneycontrol.com/news/business/economy/rbifrom 11.7 lakh crore to 19 lakh crore. Housing loans accounted for Rs 9.8 lakh
board-meet-members-discussliquidity-issues-silent-on-pcacrore, nearly half the Rs 19 lakh crore debt under the personal-loans umbrella
3291781.html)
in March 2018. Lenders have disbursed 55 percent more housing loans in FY18
when compared to the same period three years ago.
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Household debt at 7-year high as lenders hold back on loans to industry
Industrial credit has flagged lending to other sectors, with banks growing wary of big corporate loans. The
total credit to industry fell from 44.3 percent of non-food credit in March 2015 to 35.1 percent in March
2018. Personal and housing loans have been the biggest gainers in banks’ push to reduce exposure to
industry.
Lenders are issuing more housing loans despite a slowdown in the real estate sector, which is still reeling
under the twin impact of demonetization and the implementation of the Real Estate (Regulation and
Development) Act. With more money being pumped into the sector through lending to home-owners,
developers will get a fillip in delivering pledged projects. Housing prices have rebounded in some cities such
as Hyderabad and Kolkata, while prices remain subdued in others.
Easy access to credit cards is inducing more Indians to splurge. Outstanding credit card payments doubled,
from around Rs 30,000 crore in FY15 to Rs 69,000 crore in FY18. The share of credit card debt to the total
liabilities of households amounts to almost 1 percent. Automobile loans have also seen robust growth.
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12/14/2018
Household debt at 7-year high as lenders hold back on loans to industry
The trend in the ‘other personal loans’ category indicates that people are increasingly unwilling to put off
aspirational goals such as a foreign holiday for lack of funds. Banks on their part, are not shirking from
lending to people looking to live life on the installment plan. ‘Other personal loans’ accounted for 6.6
percent of total household debt, up 2.7 percent from 3.9 percent in FY15.
The central bank is looking to generate quarterly estimates of household financial savings to better gauge
the economy. The RBI’s annual report found that household income increased to 7.1 percent of GNDI in
FY18, highlighting the fact that asset growth at the household level is more than keeping pace with debt.
First Published on Sep 1, 2018 11:02 am
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Household debt at 7-year high as lenders
hold back on loans to... out a full term.
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