Falling into a debt trap? Indians are buying smartphones, cars, and houses… all on loan.

Falling into a debt trap? Indians are buying smartphones, cars, and houses… all on loan.


Synopsis

Most people are borrowing to finance their consumption needs. While banks and financial institutions increased their focus on retail lending in the last decade amid a softening interest-rate regime, the present era of rising rates may throw some challenges. NBFCs may find it difficult to replicate past growth, and borrowers will now be laden with high-cost debt.

“In recent years, Indian banks appear to have displayed ‘herding behaviour’ in diverting lending away from the industrial sector towards retail loans. Empirical evidence suggests that a build-up of concentration in retail loans may become a source of systemic risk,” says a December 27 RBI report on the Indian banking industry. To put this statement into perspective — the average Indian is now borrowing to finance his consumption needs.

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Author: Shirley