Should India worry about retail loans growing furiously?

livemint.com:

During a recent shopping expedition, we encountered a consumer offer that turned the concept of present-value of money on its head. We were looking to buy a refrigerator and were informed that if we opted for a no-cost six month equated monthly instalment (EMI) plan, we would get a discount. No such discount was available on making the full payment instantly.

In effect, we were being told that if we paid later, we would pay less. While a large part of this discount is funded by the appliance manufacturer, some of it is picked up by the lender that provides the EMI option. Their customer analytics probably tells them that a certain proportion of customers who avail such offers delay subsequent payments.

In those cases, they can charge a usurious rate of interest which ends up subsidizing the customers who pay on time. This could give a nice bump-up to loan growth, which is a metric that investors closely track, even as more consumer data is stored that can help cross-sell other products as an added advantage. The old Hindi line of “Aaj nagad, kal udhaar" has given way to credit discounts, and consumers seem to have enthusiastically jumped onto this bandwagon.

This is evident in the recent net household financial savings data that the Reserve Bank of India (RBI) published. At 5.1% of gross domestic product (GDP) in 2022-23, it has fallen to a multi-year low. Importantly, it is a steady increase in financial liabilities that has been the main contributor to lower net savings.