Is India’s Household Debt Really Low? Motilal Oswal's Analysis

Motilal Oswal Report

According to the Reserve Bank of India, household debt in India stood at 35.3% of gross domestic product in FY22 (the latest official data). Our estimates suggest that it has remained steady at 35.4% as of December 2022 (or Q3 FY23). A comparison of world’s major economies confirms that while India’s household debt is very low compared to many advanced nations and China, it is still higher than many other Asian emerging nations.

Interestingly, although India’s household debt is much lower than that in advanced economies, the non-mortgage debt stood at ~25% of GDP in CY22 in India, the same as in Australia and Japan, and higher than in world’s many other major nations (including the U.S. and China).

Further details reveal that agricultural and business loans account for more than half of non-mortgage household loans in India; on the other hand, education, credit cards, and consumer durables make up only a small portion of the overall household debt. This break-up, notably, is very different in various nations.

India’s total household debt is relatively low due to its limited share of mortgage debt, which was just about 10% of GDP in CY22 as compared to 40% in China and Malaysia, 50% in the U.S., and as high as 87% in Australia.

One of the reasons for low mortgage debt could be the high share of rural areas (and thus, rural population) in India. Although ~65% of India’s population stays in rural areas, they accounted for only about 15% of total individual housing loan disbursed by housing finance companies in FY22.

Similarly, only about 6% of (outstanding) housing loans by scheduled commercial banks accrues to the rural sector, whose share has fallen in the past decade.

Such low intensity of credit in the rural sector not only indicates a large potential, but also presents a structural constraint to increase housing loans substantially in India.

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