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India’s debt growth accelerated in 2QFY22

Corporate debt growth at a nine-quarter high: A new beginning or just a blip?

* India’s non-financial sector (NFS) debt grew 11.9% YoY in 2QFY22 (quarter-ending Sep’21), similar to the 12.2% average growth during the previous two quarters. Outstanding NFS debt rose to INR371t in 2QFY22. However, it eased to 170.2% of GDP (from its peak of 180.2% of GDP in 4QFY21) due to the nominal GDP normalization effect.

* Within NFS debt, general government (GG) debt (Center + states) continued to rise strongly at 16.1% YoY in 2QFY22, while the non-government, non-financial (NGNF) debt grew to a nine-quarter high of 7.7% YoY. Within the NGNF sector, household (HH) debt growth softened to a five-quarter low at 9.1% YoY, while non-financial companies (NFCs) debt rose to a nine-quarter high of 6.8% YoY in 2QFY22, compared with 2.2% YoY growth in 2QFY21 – the lowest in two decades.

* An analysis of NGNF debt by sources/lenders suggests that the growth of Banks, NBFCs and Bonds was at 2-3 quarter high, while the growth was at a five-quarter high through ECBs. The CP issuances reported growth only after nine quarters. Housing Finance Companies (HFCs)’ loan book, however, witnessed the slowest growth of 3.3% in five quarters, due to the acquisition of DHFL’s loan book by Piramal during the quarter.

* Overall, while NGNF debt growth picked up in 2QFY22, it is still subdued compared with the average growth of 15% in the pre-COVID decade. High government debt helps in maintaining NFS debt growth at a decent level.

* A comparison with certain other major economies (the US, the UK, Japan, and China) suggests that the debt-to-GDP ratio peaked almost everywhere in 2HFY21 (4QCY20 or 1QCY21) and fell in 2QFY22 (3QCY21) due to the nominal GDP normalization effect. While India’s leverage is much lower than most of these major nations, it is certainly not low compared with the debt-to-GDP ratio of ex-China developing world.

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