The fast growth in non-housing personal loans ought to worry us

livemint.com:

Shaktikanta Das, governor of the Reserve Bank of India (RBI), recently raised concerns over the “very high growth" of “certain components of personal loans." Loans referred to as retail loans in common parlance are termed personal loans by RBI. They comprise housing loans, advances against fixed deposits, credit card outstandings, vehicle loans, education loans, loans against gold jewellery, other personal loans, etc. Outstanding personal loans were up 30.8% as of end-August in comparison with August 2022.

This figure does not give us the correct picture because in July the home-loan lender HDFC merged with HDFC Bank. RBI data for outstanding loans of banks as per economic activity does not adjust for this. Hence, we need to consider the end June data as well.

Outstanding personal loans had grown 20.9% as of June-end. Das’s statement was more likely hinting at the non-housing part of personal loans. These grew 26.7% in June.

There have been only two occasions when growth has been faster than this (February and March 2020). Nonetheless, non-housing personal loans have been growing at greater than 20% since June 2022—that is for a period of 15 months now. In July and August, their growth rate was 26.1% and 24.1%, respectively.

The data for yearly growth in personal loans is available from April 2008 onwards. In all these years, non-housing personal loans have never grown at greater than 20% for so many months. The longest had been a period of eight months from November 2017 to June 2018.

Also, the share of these loans in personal loans reached a high of 53.1% in June. They were at 50.3% in March 2022. So, there is some reason for worry, given that most of these loans are used to finance immediate consumption or buy