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Informist, Tuesday, Dec. 31, 2024

 

NEW DELHI – Nearly a third of super-prime borrowers in India are availing loans for consumption, according to the Reserve Bank of India. On the other end of the spectrum, nearly half of sub-prime borrowers took loans for consumption purposes, the central bank said in the December edition of its Financial Stability Report.

 

Borrower-type analysis showed that sub-prime borrowers availed loans primarily for consumption, whereas super-prime borrowers used debt for asset creation, especially housing, the RBI said. Borrowers with a CIBIL score of 300-680 are classified as sub-prime, while those with a score of 791-900 are called super-prime. 

 

India's overall household debt has been on the rise, not because of an increase in average indebtedness, but rather due to a growing number of borrowers, the RBI said. India's household debt rose to 42.9% of GDP as of June from 40.1% of GDP as of December-end. Despite increasing over the past three years, India's household debt is relatively low compared to other emerging market economies, the central bank said. 

 

The report said that the number of sub-prime loans has been declining steadily since 2021, while the share of loans classified as prime and above has risen. "Notably, close to two-thirds of the portfolio is of prime and above credit quality," the RBI said.

 

Per capita debt of individual borrowers has increased sharply for super-prime borrowers in the recent period, while it has remained stable for other risk tiers, the report said. "From a debt-servicing capacity perspective, the rise in per capita debt only among highly rated borrowers and use of debt for asset creation are credit positive and financial stability enhancing."

 

In the June edition of the report, the RBI had said that India's household debt warranted "close monitoring" from the perspective of financial stability as liabilities rose, while household savings were falling.  End

 

Reported by Shubham Rana

Edited by Avishek Dutta

 

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