New Delhi, June 10: Household debt in India has been on the rise over the past three years, but a recent report from the State Bank of India (SBI) indicates there's no need for concern.
According to the report, the increase in household borrowing is manageable and largely healthy, especially when viewed in the context of India's economic environment and the nature of the debt.
The report highlights that two-thirds of household debt is held by borrowers with prime or above-prime credit ratings. This suggests strong creditworthiness and indicates that the rise in debt is due to a broader base of borrowers rather than a spike in individual indebtedness.
A significant portion of this debt—about 25%—is tied to asset-building loans, such as those for homes and vehicles. Another 30% goes toward productive purposes, including loans for agriculture, education, and businesses. This type of borrowing is generally seen as beneficial for long-term financial stability and economic growth.
The Reserve Bank of India (RBI) also considers the rise in household debt to be manageable. India’s household debt-to-GDP ratio stands at 42%, which is lower than the 49.1% average among other emerging market economies (EMEs).
SBI's analysis shows that 45% of household loans—such as personal loans, credit card debt, and consumer durable financing—are used for consumption. Despite this, relief may be on the horizon for many borrowers. The RBI has already cut the repo rate by 100 basis points in its ongoing rate-easing cycle, which has lowered interest rates linked to external benchmarks.
As a result, approximately 80% of retail and MSME loan portfolios—tied to the External Benchmark Lending Rate (EBLR)—are expected to benefit. Households could save an estimated Rs 50,000 to Rs 60,000 due to reduced interest costs. This easing cycle is projected to continue for another two years, potentially lowering household borrowing costs further.
In a move to support this trend, the RBI last week cut the policy repo rate under the Liquidity Adjustment Facility by 50 basis points, bringing it down to 5.5%. Additionally, the central bank announced a phased reduction in the Cash Reserve Ratio (CRR) by 100 basis points, implemented in four tranches of 25 basis points each, beginning September 6.
(With agency inputs)
