The Reserve Bank of India (RBI) has highlighted that while household debt in India has been on the rise over the past three years, it remains relatively low compared to other emerging market economies (EMEs).

India’s Household Debt

It said, “At 42.9 per cent of GDP (at current market prices) in June 2024, India’s household debt is relatively low compared to other EMEs, however, it has increased over the past three years”.

According to the report, household debt stood at 42.9 per cent of GDP at current market prices in June 2024. The report underlined that the rise in household debt is primarily driven by an increase in the number of borrowers, rather than a rise in the average indebtedness per individual.

Borrowing by individuals in the household sector accounted for 91 per cent of the total household financial liabilities as of March 2024.

Purpose Of Borrowing

The data revealed that individuals primarily borrow for three main purposes, consumption which includes personal loans, credit card debt, and loans for consumer durables.

The other is Asset Creation, which includes Mortgage loans, vehicle loans, and two-wheeler loans and the productive activities like Loans for agriculture, business, and education. Interestingly, the report noted that nearly two-thirds of the loan portfolio belongs to borrowers with prime or higher credit quality.

The borrowing behavior varied across risk categories. Subprime borrowers largely took loans for consumption purposes, while super-prime borrowers predominantly used debt for asset creation, especially for housing.

The rise in per capita debt was particularly notable among super-prime borrowers, indicating their growing preference for using credit to invest in assets. In contrast, per capita debt levels among other risk categories have remained stable.

From a financial stability perspective, the RBI found the trend encouraging. The increase in debt among highly rated borrowers, coupled with its use for asset creation, is seen as a positive development that enhances credit quality and financial resilience.

This analysis highlights the evolving borrowing patterns in India, reflecting both increasing financial inclusion and the diverse credit needs of households