Indians are slowly succumbing to their debt wish

New Delhi: Retail loan rates have registered a compound growth rate (CAGR) of 16.4 percent but the CAGR for number of loan accounts has only been 7.5 percent in the last five fiscal years, data from the Reserve Bank of India's trend and progress of banking report says. But with individuals earning more, the increase in loans could result due to a rise in incomes.

The data reveals that an average Indian is borrowing far more than what the growth in his income would warrant. This is evident from the higher growth in per capita loan amount versus per capita GDP (gross domestic product) growth. In FY18, the per capita GDP rose 8.5%, while the per capita loan amount increased by 17.9%.

Why do Indians love loans?

People take loans for various reasons – personal loans, latest gadgets, education, weddings, lifestyle changes and so on. In order to realise their desires, there is no wonder Indians are stacking up their loans at higher rates. Credit scores have also made it easier for individuals to access loans.

Indians have also taken loans to upgrade their vehicles, with the growth in the number of auto loan accounts increasing to 13 percent while the outstanding amount grew by 25 percent. Housing loans follow but the rise here is low, corroborating the stagnation in the real estate market.

Nevertheless, the alarm bells don't have to be ringing yet as delinquencies haven't risen. The comfort is largely driven by the near 2 percent bad loan ratio, while those for farm loans, industry loans and even loans to services are far higher.