Debt Won't Be A Bad Word

Consumer debt, along with need for corporate debt, is likely to increase. But as economic growth expands in a low-inflation regime, debt may not be a huge concern in the next decade.

- Salil Panchal

The current decade could well be one corporate India might want to forget quickly. It has been characterised by massive bank loan defaults by some well-known names in corporate India such as Bhushan Steel and Essar Steel. While such companies have found, or are poised to find, new owners through a resolution at tribunals, in other cases the realisation of claims by creditors and lenders continues.

As we race towards the new decade, lending activity from banks continues to be impacted. Some of India’s largest lenders, State Bank of India and Punjab National Bank, have swallowed the bitter pill,unable to make recoveries after the collapse of Kingfisher Airlines, led by one-time billionaire Vijay Mallya, and a fraud carried out by fugitive diamond manufacturer Nirav Modi.

India Inc. of 2030 might look vastly different, say experts. As India moves into a low inflation-rate regime, interest rates are likely to remain benign in the early part of the next decade and debt may not be a cursed word for corporates.

RISING DEBT

“While debt will continue to rise due to economic activity, consumer debt is expected to outpace corporate debt by 2030. Consumer debt will grow faster than corporate debt, albeit from a low base,” Ridham Desai, India equity strategist at Morgan Stanley, tells Forbes India. Banks are focussing on retail lending, considering that household debt—which includes lending towards personal loans, housing, auto, consumer durables and credit card activity—is surging.

India’s household debt, though still way behind that in China (51.5 percent) and US (76.4 percent), is at 11.3 percent of India’s GDP, up from 8.7 percent in 2011.