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India’s debt growth range bound in 3QFY22

Household debt grows at an 11-quarter high; Corporate debt weakens again

India’s non-financial sector (NFS) debt grew 11.5% YoY in 3QFY22/4QCY21 (quarter-ending Dec’21), slightly lower than the average growth of 12% during the prior three quarters. Outstanding NFS debt rose to INR381t in 3QFY22. However, it eased to 166.7% of GDP in 3QFY22, from its peak of 179.8% in 4QFY21 and 157.9% in 4QFY20. 

Within NFS debt, general government (GG) debt (Center + states) continued to rise strongly at 16.5% YoY in 3QFY22, while the non-government non-financial (NGNF) debt grew 6.7% YoY, lower than 7.9% in the previous quarter. Within the NGNF sector, household (HH) debt growth stood at an eleven-quarter high of 15.9% YoY, while non-financial companies’ (NFCs) debt was largely stagnant in 3QFY22 (in QoQ as well as YoY terms).

An analysis of NGNF debt by sources/lenders suggests that housing finance companies (HFCs) and external commercial borrowings (ECBs) posted faster growth, while SCBs’ growth was stable at ~8%. Lending by NBFCs, bonds and commercial papers (CPs), however, weakened in 3QFY22. The combined loan book of NBFCs and HFCs reported a record low growth of 4.7% YoY in 3QFY22, v/s an average growth of 7.5% in the prior few quarters.

A comparison of India’s NFS debt vis-à-vis a few other major economies confirms that while debt-to-GDP had peaked out in all nations in 4QCY20/1QCY21 (except Japan), the debt ratio at the end of CY21 remained much higher than the preCOVID level (CY19-end). The incremental rise in India, however, is the least compared to others.

India’s NFS debt grew 11.5% YoY, eased to 166.7% of GDP in 3QFY22: Our estimates suggest that India’s NFS debt stood at INR381t in 3QFY22, up from INR342t/INR373t in 3QFY21/2QFY22, respectively (Exhibit 1). More than 70% of the rise in NFS debt in 3QFY22 (vis-à-vis 3QFY21) was attributable to the government sector (and almost half due to the central government only). Within the NGNF sector, while HH debt grew strongly, corporate debt growth weakened again in 3QFY22. India’s NFS debt rose 11.5% YoY in 3QFY22, similar to the average growth of 12% during the previous three quarters (Exhibit 2).

As nominal GDP recovers, it grew 19.1% YoY (on an annualized basis) in 3QFY22. Accordingly, India’s NFS debt eased to 166.7% of GDP in 3QFY22, from its peak of 179.8% in 4QFY21 and 157.9% in 4QFY20 (Exhibit 3). The decline in debt-to-GDP ratio (vis-à-vis 3QFY21) was broad based.

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