Record household debt: Loans outpace deposits for 3rd year in a row

Debt higher than many BRICS peers, at lower per capita GDP

In the past three financial years, Indian households took more money from banks as loans than they invested as deposits.

Money deposited by households was equivalent to 4.5 per cent of gross domestic product (GDP) in the nine months ending December 2023, shows data from a 19th March Motilal Oswal Financial Services ‘EcoScope’ report.

While bank loans were equivalent to 4.9 per cent of GDP.

The report, authored by research analysts Nikhil Gupta and Tanisha Ladha, also said that it wasn’t a recent trend.

Deposits grew at a slower pace than the loans in the first nine months FY23 and FY 22 also.

It has pushed India’s household debt to a new high, the report added.

Deposits have grown from 3.3 per cent of GDP in the first nine months of financial year 2020 (9MFY20) to 4.5 per cent of GDP in the first nine months of FY23.

While bank loans have risen from 2.9 per cent of GDP to 4.9 per cent of GDP over a similar period.

The rise in bank loans helped push household debt from 36.9 per cent of GDP in December 2022 to a record 40.1 per cent of GDP in December 2023.

“...household debt was revised up to 38 per cent of GDP in FY23 (and down to 36.7 per cent of GDP in FY22), only second to 39.1 per cent of GDP in FY21. Our estimates suggest that it has risen to 40 per cent of GDP as of Dec’23 (Q3FY24), reaching a new high... Based on banks’ data, it is clear that unsecured personal loans (PL) continue to grow at the fastest pace within household debt, followed by secured debt, agricultural loans, and business loans,” said the Motilal Oswal Financial Services report.

International data shows that Indian households have high debt relative to the country’s per capita income.

The Business Standard analysis considered household debt data across the top five economies and the BRICS (Brazil, Russia, India, China and South Africa) countries, sourced from the Switzerland-based Bank for International Settlements. The latest available numbers are as of September 2023.

Germany, China, Japan and the USA have higher household debt relative to GDP. It ranges from 50-75 per cent of GDP. It is lower for Russia, Brazil and South Africa where it ranges from 20-35 per cent of GDP. India falls close to the middle of this pack.

The per capita income, broadly a measure of the average earnings in a country, is significantly lower in India than any of the top five large economies, or its BRICS peers.

Germany, China, Japan and the USA have a per capita GDP which ranges from $12,000 to $77,000. Russia, South Africa and Brazil have a per capita GDP which ranges from $6,000 to $16,000.

It is around $2,400 in India.

While deposit growth has slowed, there has been some incremental saving through capital markets, according to the Motilal Oswal report.  

“... the share of capital market investments...has quadrupled to an average of 0.8 per cent of GDP in the past seven years (FY17-FY23) from just 0.2 per cent of GDP in the years prior to demonetisation and it likely stayed at 0.7 per cent of GDP in 9MFY24,” it said.