Household Debt Rises, Formal Finance Makes Deeper Inroads: SBI Research

India’s household debt rose steadily during the 2012-2018 period, with rural households seeing a steeper rise, according to a survey.

The average amount of debt among rural households rose 84%, while urban households saw an increase of 42% over this six-year period, the latest ‘All India Debt And Investment Survey’ released on Sept. 10 showed. The survey is conducted periodically and released with considerable delays.

“State-wise trends indicate that the rural households’ average debt more than doubled in 18 states for the six-year period ended 2018, while seven states witnessed the same for urban households,” said SBI Economic Research in an analysis of the survey.

While debt rose, assets held by households also increased. Still, the debt-asset ratio deteriorated modestly.

For rural areas, the debt-asset ratio was at 3.8 in 2018 compared with 3.2 in 2012. For urban households, it increased from 3.7 to 4.4.

Kerala, Madhya Pradesh and Punjab witnessed deterioration of at least 100 basis points in debt asset ratio over the six-year period ended 2018. “On balance, the pace of asset creation seems to have kept pace almost on an even keel across both rural and urban areas, with a marginal tilt towards the latter,” SBI Research said.

For decades, India has tried to push formal finance deeper into the hinterlands, in the hope that easier availability of institutional credit will break the hold that moneylenders have historically had in rural areas.

The efforts, according to the survey data, are increasingly paying off.

The share of outstanding cash debt from non-institutional credit agencies has declined significantly to 34% in 2018 from 44% in 2012, SBI Economic Research said in its report analysing the survey. “Notably, almost all states have registered steep decline in non-institutional credit in rural areas, indicating the increase in formalisation of the economy.”

The share of non-institutional credit has declined significantly in case of Bihar, West Bengal, Rajasthan, Haryana and Gujarat.

Even in Haryana and Rajasthan, that witnessed loan waiver schemes, the share of non-institutional credit declined contrary to popular perception, the report said.

“This could be explained by significant increase in penetration of Kisan Credit Cards in these two states. Our estimates show that the number of KCC cards has jumped five times over the seven-year period ended 2020,” Ghosh wrote.

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