Domestic debt has more than doubled in the past decade. But the good thing is that according to a report by economists at SBI, the dependence on informal sources of finance has fallen in this period. Domestic debt may have declined in Q1’2021-22 after a sharp spike in Q1’2020-21 due to growth in GDP in the latest quarter.

Referring to the recently released India loan and investment survey The (Edis) 2018 report said that debt on both rural and urban households has increased rapidly. The average loan amount for rural and urban households increased by 84% and 42%, respectively, for the 6-year period ending 2018. The debt-asset ratio, which is an indicator of household debt, has increased from 3.2 in 2012 to 3.8 for rural households in 2018. and from 3.7 to 4.4 for urban households.

Notably, lending rates fell sharply during this period as banks focused on retail to grow their loan books during this period.

Spike has increased as a result of the COVID-19 pandemic home loan As for the GDP rate, “As per our estimates, it rose sharply to 37.3% in 2020-21 from 32.5% in 2019-20 (BIS estimate is 37.7% as of December 20)” the report said. “We estimate that household debt as a percentage of GDP has declined to 34% in Q1FY22 with GDP growth in Q1 although it has increased in absolute terms. We estimate that rural and Household debt in urban areas may double in 2021 from 2018 levels”.

State-wise trends indicate that the average debt for rural households in 18 states more than doubled for the 6-year period ended 2018, compared to the same for urban households in 7 states. Importantly, 5 states including Maharashtra, Rajasthan and Assam saw a simultaneous doubling of average credit in both urban and rural households during this period. Kerala, Madhya Pradesh and Punjab were the 3 states where the debt asset ratio declined by at least 100 bps.

But what is to be expected is that in rural India, the share of cash credit outstanding from non-institutional lending agencies has come down significantly from 44% in 2012 to 34% in 2018. Notably, almost all the states have reported a steep decline in non-institutional credit. In rural areas, there is a sign of increased formalization of the economy.

“We believe that the recent reforms in agriculture can help formalize the economy despite the political noise. However, there is still a fundamental reform pending which is under the purview of the RBI. This has made agriculture a cash-credit equivalent. other section” is stated in the report.