India's household debt is at a relatively low level, 42%, compared to 49.1% for other emerging market economies

While household debt in India has been increasing over the past three years, a State Bank of India (SBI) report suggested that it's not necessarily a cause for alarm, especially when considering the context of the economy and the type of debt.

It said India's household debt is manageable and not worrisome at all, as two-thirds of the portfolio is of prime and above credit quality and the rise is attributed to a growing number of borrowers rather than an increase in average indebtedness. Additionally, asset creation, such as home and vehicle loans, makes up 25 per cent, while productive purposes like agriculture, business, and education loans constitute 30%. The Reserve Bank of India (RBI) views the rise in household debt as manageable, particularly since two-thirds of the portfolio consists of prime and above-credit-quality borrowers. 

As of now, India's household debt is at a relatively low level, 42%, compared to 49.1% for other emerging market economies (EMEs). SBI's analysis revealed that 45% of loans, including personal loans, credit cards, and consumer durable loans, are used for consumption purposes.

The RBI's ongoing rate-easing cycle has already seen a 100-basis-point reduction in the repo rate, leading to an automatic decrease in externally linked benchmarked interest rates. This is expected to provide substantial relief to households. During this rate-cut easing cycle, it is estimated that approximately 80% of retail and MSME loan portfolios are linked to the External Benchmark Lending Rate (EBLR), suggesting potential savings of around Rs 50,000 to Rs 60,000 for households. 

Poverty rate declined further to 4.6% in 2024 India's poverty continues to decline steadily, with the poverty rate fell to 4.6% in 2024, estimates a recent report by the SBI. This marks a significant improvement from the 5.3% poverty rate estimated by the World Bank for India in 2023. The report said "Poverty estimates by SBI and World Bank are remarkably similar.... SBI estimates it at 4.6% in 2024...down from 5.3% in 2023 as estimated by World Bank". The report highlighted that the country has made remarkable progress in reducing poverty, and its latest estimate shows a further fall from the World Bank's assessment.