Headline: RBI Report: Household Debt in India Poses Limited Default Risk Despite Recent Financial Liabilities
Subheading: Gross Household Financial Savings Revert to Pre-Pandemic Levels, Supporting Steady Capital Formation
Mumbai, Jan 2 – The Reserve Bank of India’s (RBI) financial stability report has noted that despite a recent uptick in financial liabilities, household debt in India remains comparatively lower than in other emerging market economies (EME). The report highlights that the risk of defaults due to increased exposure to higher mortgage payments and floating-rate interest is limited in India.
Gross household financial savings, which peaked at 15.4% of GDP in the pandemic’s peak year (2020-21), have reverted to pre-pandemic levels, standing at 10.9% in 2022-23. Although household net financial savings (HNFS) saw a decline to 5.1% of GDP in 2022-23 from 11.5% in 2020-21, the report suggests that overall savings may remain steady with a shift towards physical savings, contributing to gross capital formation.
The fall in HNFS is attributed to a rapid rise in financial liabilities, reaching 5.8% of GDP in 2022-23, fueled by increased borrowings for physical asset creation such as mortgages and vehicles. However, recent data indicate a normalization of HNFS, rising to 7.0% of GDP in Q4:2022-23 from 4.0% in the previous quarter.
Household debt, as a percentage of GDP, has moderated to 37.6% in March 2023 from its peak at 39.2% in March 2021, according to the RBI report. The observations suggest a stable financial scenario for Indian households, supporting the private investment cycle and contributing to overall economic growth prospects.
