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Indian consumption and rising consumer leverage

According to the Reserve Bank of India (RBI) data,

In May 2010, the total outstanding personal loan amount with banks stood at Rs 5.89 lakh crore. This amount as on June 2018 was Rs 19.33 lakh crore.

Consumer durable loans’ as on May 2010 was Rs 8,138 crore, and on June 2018 it was Rs 20,300 crore.

Outstanding credit cards’ amount as on May 2010 was Rs 19,579 crore, and on June 2018 it was Rs 74,400 crore.
These are all unsecured loans, i.e., you don’t have to give collateral to borrow.

As on June 2018, the total number of credit cards outstanding were 3.93 crore, and on June 2011 it was 1.76 crore.

Since 2010, a lot of banks have changed their strategies and have started focussing more on retail lending. “The size of their retail loan books has gone up due to this change in strategy. Categories like mortgage and auto loans are not much of a worry because they are collateralized with fixed assets. The miscellaneous category is of interest as it is large in size and needs some degree of monitoring. These are generally unsecured loans that are usually taken for purposes like marriage, festival etc

According to CRISIL a large proportion of customers taking personal loans, consumer durable loans are working class in the age group of 25 – 45 years. In terms of geographic split, metropolitan cities (population greater than 10 lakhs) accounted for 80% of the credit card customer base in FY17. However, the share of metro cities has been continuously declining from close to 99% in FY12 to 80% in FY17,”

This has been the biggest driver of Indian Growth and the above data is only from banking system. NBFC, HFC, P2P and other fintech company related consumer lending is not captured in the data.

The two components in equation of C+I+G+ ( X-M)= GDP, which have worked wonders for India is Govt spending and Consumption . Indian household leverage is low compared to Emerging Economies but needless to say it is rising very fast.

My concern is that rising consumer leverage is met with stagnant salaries/wage (except for govt employees) and we may start to see stress on consumption and consumer balance sheet in next couple of years .

 

 

 

 

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