The global financial meltdown of 2008 was brought on by a choppy U.S. mortgage market. Part of the crisis was triggered by high household debt besides lending to borrowers with not-so-good credit history. The world’s largest economy saw its household debt steadily rise to nearly 100 per cent of GDP at the time of the crisis from 65 per cent a decade ago. That was a massive jump in a matter of 10 years as the money had rolled into mortgages, car loans, credit cards, personal loans and more. Eventually, the easy money induced the crisis and other markets suffered as well. India’s household debt to GDP currently stands at 11.67 per cent, which is quite low compared to developed countries like the US. But debt levels are also rising here – household debt was in the range of 8-9 per cent of the GDP six years ago (see graphic Ballooning Danger).
Shanti Ekambaram, President, Consumer Banking, at Kotak Mahindra Bank, has a point to make. As India is a low per-capita-income country compared to developed nations, Indian households are more prone to shock due to lower income levels. As per the data available, annual per-capita income stands at 1.42 lakh against the debt of 16,945 per person. “The debt levels are not alarming, but you have to analyse the loan segments. It could be alarming at lower-income segments but not necessarily at percapita income levels,” she says.
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