India’s rising household debts are not worrisome: SBI report

India's household debt manageable, with majority prime credit quality borrowers, asset creation loans, and potential interest savings.

While household debt in India has been increasing over the past three years, a State Bank of India (SBI) report suggested that it’s not necessarily a cause for alarm, especially when considering the context of the economy and the type of debt.

It said India’s household debt is manageable and not worrisome at all, as two-thirds of the portfolio is of prime and above credit quality and the rise is attributed to a growing number of borrowers rather than an increase in average indebtedness.

Additionally, asset creation, such as home and vehicle loans, makes up 25%, while productive purposes like agriculture, business, and education loans constitute 3%. The Reserve Bank of India (RBI) views the rise in household debt as manageable, particularly since two-thirds of the portfolio consists of prime and above-credit-quality borrowers.

As of now, India’s household debt is at a relatively low level, 42%, compared to 49.1% for other emerging market economies (EMEs).

SBI’s analysis revealed that 45% of loans, including personal loans, credit cards, and consumer durable loans, are used for consumption purposes.

The RBI’s ongoing rate-easing cycle has already seen a 100-basis-point reduction in the repo rate, leading to an automatic decrease in externally linked benchmarked interest rates. This is expected to provide substantial relief to households.

During this rate-cut easing cycle, it is estimated that approximately 80% of retail and MSME loan portfolios are linked to the External Benchmark Lending Rate (EBLR), suggesting potential savings of around ₹50,000 to ₹60,000 for households.