Rising retail loans - signs of impending household financial distress?
Indian households are dealing with a triple whammy: rising inflation, uncertain income and bleak employment prospects. This is over and above the uncertainty of a medical emergency due to the pandemic.
The drop in household savings rate to 8.2% in the December quarter from 21% and 10% in the previous two quarters may not necessarily indicate discretionary spending. Households could be dipping into savings to meet essential expenditure amid a hit to incomes as well.
The rise in retail loans provides us with enough indication of the impending distress in the household finances. It is on the verge of becoming the largest segment in India’s credit market - eclipsing industrial loans.
Over the last decade, housing loans have maintained their 50% share in retail loans. But there are three notable changes.
- Education loans have lost share
- Loans against gold spiked during the pandemic
- Personal loans, which may not be backed by collateral, have shot up from 18% to 28%
Total financial liabilities of Indian households as a share of gross domestic product (GDP) have increased from 26% in June 2015 to 38% in December 2020. This figure is 80% for the US and 62% for China, according to data from the Bank for International Settlements (BIS).
With the pandemic showing no signs of slowing down, the growth in gold loans and unsecured loans have the potential to hurt individuals and financial institutions alike.
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~ Sajid
