Home, personal loans drive household debt to 4% of GNDI, highest in 7 yrs

The financial liabilities of households have gone up to at least a seven-year high of 4 per cent of their disposable income, according to the Reserve Bank of India (RBI) Annual Report for 2017-18 (FY18). This is significant, as it comes after a consistent reduction from 3.2 per cent of the gross national disposable income (GNDI) in 2011-12 to 2.4 per cent of GNDI in 2016-17 (FY17).

While the reason for its fall to 2.4 per cent of GNDI in FY17 was demonetisation, the growing demand for housing and unsecured personal loans led to a rise in liabilities in FY18, experts said.  

This is also evident from the fact that the share of personal loans in the outstanding non-food credit rose from 19.4 per cent at the end of March 2015 to 24.8 per cent at the end of March 2018, according to the RBI’s monthly credit deployment data. It stood at 25.3 per cent in June 2018.

From March 2015 to March 2018, the outstanding non-food credit grew by 28 per cent. In the same period, personal loans outstanding grew by 63 per cent, from Rs 11.7 trillion to Rs 19 trillion. In that, housing loans outstanding grew 55 per cent, from Rs 6.3 trillion to Rs 9.8 trillion, clearly growing faster than the growth in overall credit outstanding.

Personal loans have replaced a part of the share of industry credit, which is tapering for the last four years, while the balance has gone to the services sector.

The share of industry loans has plummeted from 44.3 per cent at the end of March 2015 to 35.1 per cent of the non-food credit in March 2018, a fall of 9 percentage points and that of services has increased from 23 per cent to 26 per cent.

Under personal loans, housing and 'other' personal loans have contributed the most to household financial liabilities.

The share of housing loans (including priority housing) in the bank credit rose from 10.5 per cent of the non-food credit in March 2015 to 12.7 per cent in March 2018. It has further grown to 13.1 per cent at the end of June 2018.

Despite a slowdown in the housing and real estate sector after demonetisation, goods and services tax, and Real Estate (Regulation and Development) Act implementation, house prices have continued to appreciate strongly in cities such as Pune, Hyderabad, Bengaluru, and Kolkata, according to the data by Anarock property consultants.

“The price appreciation trends clearly indicate the investors and speculators are out of the market and it seems to be a pure end-user driven market offering good deals for homebuyers. This has led to resurgence in the home-buying sentiment,” Anuj Puri, chairman at Anarock, told Business Standard.

According to the RBI data, other personal loans have surged twofold, from Rs 2.3 trillion at the end of March 2015 to Rs 5 trillion at the end of March 2018. The share of these loans in the total non-food credit pie has increased from 4 per cent to 6.6 per cent in the same period.

Vehicle loans have also cornered a bigger share, but the growth in credit card outstanding has been the fastest, compared to other personal loan segments, albeit from a lower base. The credit card outstanding more than doubled, from about Rs 300 billion in March 2015 to Rs 690 billion in March 2018, closing in on about 1 per cent of the overall non-food credit as on date.

In an attempt to understand the impact of household savings and investments on the economy more clearly, the RBI’s annual report indicated it is attempting to generate quarterly estimates of household financial savings.

"According to the bank's preliminary estimates, net financial assets of the household sector increased to 7.1 per cent of GNDI in FY18, on account of an increase in households' assets in the form of currency, despite an increase in households' liabilities," the report said.