Various economic factors are indicating that Indians might be borrowing more than they can repay
The rise in credit card outstandings in itself is not so much of a worry as much as two accompanying factors.
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ContributeFirst, industrial credit–or loans made to businesses or corporations–is not keeping pace and history shows that it usually comes ahead of personal credit growth. Moreover, debit card spends, which often keep pace–suggesting increasing consumer spending propensity–are actually declining.
The combination of these factors signal growing indebtedness amongst Indian consumers and borrowers, State Bank of India’s Chief Economic Advisor Dr Saumya Kanti Ghosh told me on my weekly Policy Watch show on Rajya Sabha TV this week.
Ghosh said they studied the relation between credit allocated to industry and personal loans over the last 10 years. “This clearly showed that industry credit growth leads to personal credit growth and not the other way round,” he said.
As of March, each year
Here are nine reasons why this trend might be of concern, according to Ghosh and his team of economists.
Now, let’s look at the flip side:
What is the way out?
Depends on where you sit. Mitra felt the market for consumer credit is still very large and unexplored, particularly in a country where consumer credit in its current form is only 20 years old.
The immediate problem for the larger banking system is obviously non performing assets and lack of industrial credit pick up. That has to be and is being addressed inasmuch as it can be.
Bank boards have to be cognisant of rising credit card outstandings and take some prudential steps in addition to what they are already taking. Possibly, some re-visiting of consumer repayment capability is called for and tighter limits than what exist today.
Finally, watch your step. Next time you swipe, ask yourself, do you really need it or do you just want it? And finally, can you clear your credit card bills in toto when they land in the mailbox at the end of the month?
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