India’s household credit to GDP ratio reaches 37.7% in 2020

India’s household credit to GDP ratio is catching up with its emerging peers, an RBI report said on Monday. According to the report, India’s household credit to GDP ratio in 2020 at 37.7% is way below China’s 61.7%, but coincided with South Africa from 2017 onwards. Recently, Brazil (36.8%) has also converged to India’s level.

The share of personal loans in total credit in households has risen steadily in recent years. Personal loans in household credit increased to 48.1% in March 2021 from 42.3% in March 2019 — 5.7 percentage points increase during the pandemic.

Bank credit is the major component of household liabilities. More than 80% of household loan is secured and collateralised. In 2012-13 the share of secured loans in total household credit was 79% which rose to 81% in 2020-21. NPA ratio for the sector indicates a rising trend in the recent past from 3.3% in 2014-15 to 6.6% in 2019-20 but reduced to 6% in 2020-21 and it is falling well below the overall NPA ratio of 7.3% in 2020-21

The share of credit for agricultural activities reduced to 22.4% in March 2021 as compared to 26.1% during 2018-19 and trade remained around 10% in total credit of households during the period of last 9 years.

The share of Household savings in Gross Domestic Savings (GDS) declined from 68.2% in 2011-12 to 57.8% in 2015-16 but increased thereafter to 78.5% in 2020-21. Of the total savings by the Household sector, 46.7% are in the form of physical savings and 52.5% in the form of financial savings in 2020-21 and these have become the most preferred source of savings for the sector.

Meanwhile, according to the RBI report, household credit-to-deposit ratio has been continually increasing in recent years and reached to 59.1% in 2020-21, suggesting that the household sector remains net lender to the banking sector despite the continuous increase in its credit-deposit ratio. The ratio, according to the RBI report, is important to assess the impact of any financial stress arising in the household balance sheet and spilling over to the banking sector.

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