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India’s debt growth remains subdued in 3QFY21

Household debt growth picks up; corporate debt very weak

* India’s non-financial sector (NFS1 ) debt grew 10.3% YoY in 3QFY21, marking the highest growth in six quarters, higher than the record low of 8.0% in 4QFY20. Outstanding NFS debt stood at INR338t – or a fresh high of 174.4% of GDP in 3QFY21 (or 4QCY20) – as annualized nominal GDP2 declined 3.3% YoY during the quarter.

* Within NFS, general government (center + states) debt grew at a decade high of 16.3% YoY, and non-government nonfinancial (NGNF) debt grew just 5.0% YoY in 3QFY21 – only marginally better than the record low growth of 4.6% in 2QFY21. Within the NGNF sector, household debt grew at a decent 9.6% YoY in 3QFY21 (v/s 8.7% in the previous quarter) and non-financial corporate (NFC) debt grew 2.0% YoY, similar to 2QFY21 levels.

* An analysis of NGNF debt by lenders suggests the loan books of Banks and HFCs grew at a faster pace (v/s 2QFY21), while the loan book expanded slowly for other lenders, including NBFCs. Lending by SCBs to the NGNF sector grew 7% YoY in 3QFY21, up from record-low growth of 6.1% YoY in 2QFY21. External Commercial Borrowings (ECBs) are estimated to have declined in 3QFY21 for the first time in four years.

* Such weak debt growth confirms the uptick in economic activity remains subdued. Coupled with our argument that COVID-19 may adversely impact India’s household income, this implies that a strong recovery looks highly ambitious.

India’s NFS debt grew 10.3% YoY to reach 174.4% of GDP in 3QFY21:

Our estimates suggest India’s NFS debt stood at INR338t in 3QFY21, up from INR314t in 4QFY20 and INR330t in 2QFY21. The ~85% increase in NFS debt in FY21 is attributable to the government sector – as the corporate sector grew only marginally and households saw decent, but slower, growth in their outstanding debt (Exhibit 1). India’s NFS debt grew 10.3% YoY in 3QFY21 – the highest in the past six quarters – above the record-low growth levels of 8% YoY reported in 4QFY20, but slower than the 13% growth in FY19

Due to decline of 3.3% in annualized nominal GDP, India’s NFS debt rose to a record high of 174.4% in 3QFY21, from 153.3% of GDP at the end of FY20 (Exhibit 3). Almost a quarter of the rise in the debt-to-GDP ratio is attributable to weak nominal GDP, and another ~55% to government debt.

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