NS COVID-19 Due to the pandemic, household debt has increased to the GDP rate. According to the report, it rose sharply to 37.3 per cent in 2020-21, from 32.5 per cent in 2019-20.
“We estimate that household debt as a percentage of GDP has declined to 34 per cent in Q1 with GDP growth in Q1, although it increased in absolute terms,” the research report released on Wednesday said.
In total numbers, household loans increased to Rs 75 lakh crore in the first quarter of FY12 from Rs 73.59 lakh crore in FY21.
It said the recently released India Credit and Investment Survey (AIDIS) report for 2018 showed an increase in the average amount of credit between rural and urban households between 2012 and 2018.
SBI’s research report said the average loan amount for rural and urban households grew by 84 per cent and 42 per cent, respectively, for the six-year period ending 2018.
State-wise trends show that the average debt for rural households in 18 states more than doubled for the six-year period ended 2018, compared to the same for urban households in seven states.
Importantly, the average debt in urban and rural households together doubled during this period in five states, including Maharashtra, Rajasthan and Assam, the report said.
According to the AIDIS Report 2018, the average loan amount in rural households was Rs 59,748 and in urban households it was Rs 1.20 lakh.
As per SBI research report, “In 2021, rural household credit is expected to grow by Rs 1.16 lakh and urban by Rs 2.33 lakh, indicating that COVID has significantly impacted households ”
It said the debt-asset ratio, which is an indicator of household indebtedness, rose to 3.8 in 2018 from 3.2 for rural households in 2012. For urban households, this ratio has increased from 3.7 to 4.4.
Kerala, Madhya Pradesh and Punjab were the three states that saw a decline of at least 100 bps (basis points) in the debt asset ratio in the six-year period ending 2018.
“The good thing is that in rural India, the share of cash credit outstanding from non-institutional lending agencies has come down significantly to 34 per cent in 2018 from 44 per cent in 2012.”
Notably, almost all states have reported a sharp decline in non-institutional credit to rural areas, indicating an increase in formalization of the economy, the report said.
In the case of Bihar, West Bengal, Rajasthan, Haryana and Gujarat, the share of non-institutional credit has declined significantly. In Haryana and Rajasthan, where loan waiver schemes were observed, the share of non-institutional loans declined contrary to popular belief, it said.
“This can be explained by the significant increase in KCC (Kisan Credit Card) penetration in these two states. Our estimation shows that the number of KCC cards has increased by 5 times in the 7 year period ending 2020,” the report said.
The report believes that recent reforms in agriculture can help formalize the economy despite the political uproar.