Even before the pandemic struck, the average loan amount among rural households increased by 84 percent, while urban households grew by 42 percent over the six-year period from 2012-2018.
However, there is part of the debt from the ‘good news’ non-institutional loans A report by economists from the State Bank of India (SBI) shows that the number of agencies has declined from 44 per cent in 2012 to 34 per cent in 2018.
formalization of economy
There are signs of an increase in formalization of the economy, especially in rural India, with the share of non-institutional lending agencies declining.
The decline in such credit sources has been observed significantly in Bihar, West Bengal, Rajasthan, Haryana and Gujarat.
One of the main reasons for this decline can be attributed to the increase in the number of Kisan Credit Card (KCC) issuances, especially in Haryana and Rajasthan, which saw an average increase of 9 per cent.
The report states that the number of KCC cards has increased by 5 times in the last 7 years.
Besides, farm loan waiver has been another major reason for reducing the share of non-institutional lending agencies.
Source: SBI Research
‘Agriculture reforms can help formalize’
SBI economists believe that the recent reforms in agriculture may help formalize the economy.
Agriculture is one of the main sectors of the economy, on which about 44 percent of the people depend. This sector accounts for 16 per cent of the growth of the economy.
However, at present it is growing only in the range of 3 per cent to 4 per cent.
Therefore, the report states that it has become extremely important to focus on this sector to ensure its growth.
In light of this, the report said, “This has become important in the context of recent reforms that include allowing private wholesale markets, contract farming, direct purchase from farmers and leasing of land in both the states under the earlier state.” level Act, and now under the Central Acts.”
In addition, it suggested making cash credit to agriculture at par with other sectors.
“As per asset classification norms for agricultural advances, in case of agriculture cash credit account a farmer has to clear the entire dues (principal including interest) for availing fresh loans from banks unlike other areas of cash credit business, where if The borrower has cleared the interest payment, he will be eligible for enhancement/renewal,” the report said.
post covid home loan
The household debt to GDP ratio rose during the pandemic.
The report estimates that it rose sharply to 37.3 per cent in 2020-21, as against 32.5 per cent in the year-ago period.
Even though it expects credit as a percentage of GDP to decline by 34 per cent in the first quarter of FY 2021-22, SBI economists believe it has increased in absolute terms.
“In absolute numbers, household debt has increased to Rs 75 lakh crore in the first quarter of FY12 from Rs 73.59 lakh crore in FY21.”
He also estimates that household debt in both rural and urban areas could double in 2021 compared to 2018.
Increase in Debt-Asset Ratio
The debt-asset ratio, which is an indicator of household indebtedness, increased from 3.2 in 2012 to 3.8 in 2018 for rural households. For urban households, this ratio has increased from 3.7 to 4.4.
Kerala, Madhya Pradesh and Punjab were the three states that saw a decline of at least 100 bps (basis points) in the debt asset ratio in the six-year period ending 2018.
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