Despite housing ‘boom’, share of home loans in overall credit falls by 600 bps to 47.4% in FY24

Even at the lower rate, home loans still account for the largest share of bank retail loans at 47.4 percent as of fiscal 2024, according to an analysis of the numbers by Crisil Ratings.
Image used for representational purposes
Image used for representational purposes(Photo | S Senbagapandiyan)

MUMBAI: Despite developers claiming to be booking record sales of residential units and the government dismissing the steep fall in household savings as reflection of the increased savings in physical assets, the share of home loans in overall retail credit has slipped almost 600 bps to 47.4 percent in fiscal 2024 from 53.1 percent in fiscal 2017, shows a report.

Even at the lower rate, home loans still account for the largest share of bank retail loans at 47.4 percent as of fiscal 2024, which is much lower than the 53.1 percent the segment held in fiscal 2017, according to an analysis of the numbers by Crisil Ratings. Even in percentage terms, the home loan growth rate has been tepid at 15 percent, while other loans soared.

Moreover the hard data also dispute the government claim of higher savings going into physical assets, says the report which shows that the share of this segment of the savings has plunged by more than 1010 bps to 60.1 percent in FY24 from 70.2 percent in FY23, while the net financial savings at fell to 38.8 percent.

On the other hand, indicating the rising indebtedness and the financial distress that households are facing, the share of credit cards in overall retail loans nearly doubled to 5.2 percent in FY24 from 3.2 percent in FY17, while that of vehicle loans rose to 12 percent from 10.5 percent, and other loans jumped to 27.7 percent from 23.2 percent during this period.

In fact, according to the agency, credit card debt has seen the highest growth at 21.3 percent on-year average between fiscals 2021 and 2024, followed by other loans clipping at 18.5 percent, auto at 15 percent, housing at 14.5 percent and education at 11.6 percent.

The share of retail credit in total credit rose to 19.4 percent of GDP in fiscal 2023 from 12.1 percent in fiscal 2017. Within this, banks’ retail credit rose to 15.5 percent of GDP from 10.5 percent, and that of NBFCs went up to 3.9 percent from 1.6 percent.

The overall retail credit share in GDP is estimated to have risen further to 23 percent in fiscal 2024. The initial rise in retail credit was driven by NBFCs, which outpaced banks and housing finance companies between 2015 and 2018.

In fact the retail credit demand is led by the young. According to Cafral’s 2033 report, NBFCs and fintechs are primarily serving this catchment accounting for almost 70 percent of the lending to those below 35.

Consequently, lending by fintechs and NBFCs to young borrowers almost doubled between fiscals 2015 and 2021. The Cafral report also says this segment mostly borrows to purchase personal-use products than big-ticket items.

When it comes to parking money in physical assets, the report says savings in physical assets accounted for 60.1 percent of the total household savings during fiscals 2021-23, compared to the net financial savings at 38.8 percent. In fiscal 2023, the share of physical assets was higher at 70.2 percent, while net financial savings dropped to 28.5 percent.

Households have been borrowing at a faster pace than they have been saving since the pandemic. As a result, net household financial savings which is the gross financial savings adjusted for liabilities, have fallen in fiscal 2023.

Household savings constitute 60 percent of the total savings in the economy and bankrolls a large proportion of investments and 18 percent of the GDP inFY23. The data, which come with more than a year’s lag, shows overall household savings rate, which is the net households savings/GDP fell to a six-year low in fiscal 2023 of 18.4 percent.

Within household savings, the NSO bifurcates data into three broad categories: savings in financial assets, physical assets (primarily real estate), and gold and silver ornaments. While gross financial savings comprise household cash balance, deposits and other financial market instruments, financial liabilities include their borrowings from banks and non-banks.

The latest data from NSO, which is for fiscal 2023, shows savings in physical assets were the highest at 12.9 percent of GDP, followed by net financial assets at 5.3 percent and gold and silver at 0.2 percent.

Household savings averaged 20.1 percent of GDP in the decade before the pandemic, which rose during the first wave of the pandemic to 22.7 percent due to the lockdowns. But the excess got spent quickly as the economy reopened so much so that in fiscal 2022, household savings reverted to the decadal average and then slipped to 18.4 percent of GDP in fiscal 2023.

While gross financial savings grew at 10.3 percent on-year on average between fiscals 2021 and 2023, household financial liabilities rose at the rate of 30.1 percent, which means that the gross financial savings as a percentage of GDP stagnated, while liabilities grew.

On the other hand, the share of gross financial savings in GDP was on a par with the average of 11 percent but financial liabilities at 5.8 percent of GDP were much above the average of 3.4 percent. As a result, net financial savings of 5.3 percent of GDP have been below the average of 7.6 percent.

The savings in physical assets at 12.9 percent of GDP were slightly above the average 12.2 percent. Savings in physical assets soared to 17.1 percent on-year growth in fiscals 2021-23, compared to just 2.2 percent growth in net financial savings.

The overall investments rose to 33.7 percent of GDP in FY24 from 32.2 percent of GDP in FY23 mostly driven by falling current account deficit which is likely to have fallen below 1 percent of GDP in FY24.

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