Covid-19 Impact: Household debt seems to have doubled in 2021 from 2018 ranges, says SBI report

Debt-Asset ratio, which is an indicator of family indebtedness, has elevated to 3.8 in 2018 from 3.2 in 2012 for rural households and from 3.7 to 4.4 for city households.

The COVID-19 pandemic has led to a pointy enhance in family debt to GDP ratio. As per SBI estimates, it rose sharply to 37.3% in 2020-21 from 32.5% in 2019-20 (BIS estimates are at 37.7% as on Dec’20).

“We estimate that household debt as a percentage of GDP has declined to 34% in Q1FY22 with the commensurate rise in GDP in Q1, though it has increased in absolute terms. We project that household debt in rural and urban areas might have doubled in 2021 from the 2018 levels,” says Dr. Soumya Kanti Ghosh, Group Chief Economic Adviser, State Bank of India.

As per the report, the recently-released India Debt & Investment Survey (AIDIS) report for 2018 reveals enhance in common quantity of debt amongst rural in addition to city households, with the typical quantity of debt rising by 84% and by 42%, respectively, for rural and concrete households for the 6-year interval ended 2018. State-wise development signifies that the agricultural households’ common debt greater than doubled in 18 states for the 6-year interval ended 2018, whereas 7 states witnessed the identical for city households. Importantly, 5 states, together with Maharashtra, Rajasthan and Assam, witnessed a simultaneous doubling in common debt throughout each city and rural households throughout this era.

Debt-Asset ratio, which is an indicator of family indebtedness, has elevated to 3.8 in 2018 from 3.2 in 2012 for rural households and from 3.7 to 4.4 for city households. Kerala, Madhya Pradesh and Punjab had been 3 states that witnessed deterioration of not less than 100 bps in debt asset ratio over the 6 year interval ended 2018. On stability, the tempo of asset creation seems to have stored tempo virtually on an excellent keel throughout each rural and concrete areas, with a marginal tilt in the direction of the latter.

The good factor is that in rural India, the share of excellent money debt from non-institutional credit score companies has declined considerably to 34% in 2018 from 44% in 2012. Notably, virtually all states have registered a steep decline in non-institutional credit score in rural areas, indicating the rise in formalisation of the economic system. The share of non-institutional credit score has declined considerably in case of Bihar, West Bengal, Rajasthan, Haryana and Gujarat. Even in Haryana and Rajasthan that witnessed mortgage waiver schemes, the share of non-institutional credit score declined opposite to common notion. This might be defined by vital enhance in penetration of KCC playing cards in these 2 states.

“Our estimates show that the number of KCC cards has jumped by 5 times over the 7-year period ended 2020. For the record, Haryana and Rajasthan did witness an average increase of 9%! We believe that the recent reforms in agriculture could further help in formalisation of the economy, despite the political cacophony. However, there is still a fundamental reform pending that is in the realm of RBI. This is making Agriculture Cash-Credit at par with other segments,” observes Ghosh.

As per the norms of asset classification for agriculture advances, in case of an agriculture money credit score account a farmer has to repay the whole excellent (principal together with curiosity) to search recent loans from the banks not like different segments of money credit score business the place if the borrower has cleared curiosity funds, he/she can be eligible for enhancement/ renewal. It can be in the curiosity of the farmer, if the farmer is given renewal/enhancement, particularly when the financial institution is glad with the farmer in phrases of his/her land holding/paying capability and so forth, the report states.

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