The Financial Times (FT) reported on the 25th (local time) that household loans and credit card debt are soaring as young people in India fall into conspicuous consumption.
Citing Fried, an Indian debt settlement platform, FT estimated that about 30-40% of MZ generations in India are suffering from debt that seems virtually impossible to repay. According to Fried, customers on the platform in September had an average of six loans of Rs. 560,000. The figure is higher than the average in April, when the average was four cases and Rs. 520,000. “Desperate consumers and easy loans are meeting,” Ritesh Srivastava, Fried’s founder and CEO, told FT. “The situation is not good in that there is a loan boom among people who lack financial knowledge and household savings are at an all-time low.”
The Central Bank of India (RBI) has also warned several times that unsecured loans are surging as banks and fintech firms in India provide easy credit lending services to millions of middle-class people in the country. RBI Governor Shaktikanta Das also expressed concern over the continued rise in loans in August, saying most of the loans were aimed at “consumption.”
India’s household debt remains low compared to advanced countries. However, the growth rate is steep. According to an analyst at Indian financial services group Mortiral Oswal, India’s household debt to GDP reached a record high of 40% in the latest fiscal year announced as of March. On the other hand, Indian individuals’ net savings reached a 40-year low. As Indian individuals’ disposable income failed to keep pace with the pace of economic expansion, debt increased and savings decreased. Goldman Sachs also warned in India in August that “there are growing concerns about deteriorating asset soundness,” adding that “unsecured loans continue to increase and some households are suffering from excessive leverage.”
In November last year, the RBI raised the risk-weighted ratio of personal loan collateral from 100 percent to 125 percent in an effort to address the growing delinquency rate. However, the RBI said that the increase in credit card and unsecured personal loans (retail loans) has had the effect of raising interest rates, easing the rate of increase in credit card and unsecured personal loans from 31 percent a year ago to 14 percent in July. However, analysts at Nomura Securities estimate that the delinquency rate of individuals in India who have been overdue for more than 90 days has increased from 3.9 percent in fiscal year to 5.1 percent now.
JULIE KIM
US ASIA JOURNAL
