The increased scrutiny of the Reserve Bank of India (RBI) towards consumer credit particularly unsecured loans is unlikely to derail the overall growth story with household (HH) credit growing at 14 per cent amid a gradual increase in HH debt to GDP by 10 percentage points over the next decade, analysts at Bernstein said in a report.

The foreign brokerage further added that at an aggregate level, India is not in bubble territory when it comes to consumer loans. It arrived at this view after looking at various indicators of household leverage and comparing them with the absolute levels and the trajectories seen in other banking sectors or economies. Here, its analysts found little evidence of excessive growth.

``Most measures of household leverage remain well within the normal range and have only improved over the decade. The only concern could be the higher HH debt to GDP versus what other countries had at similar levels of GDP per capita. But we believe that is explained by the innovation seen in the lending products and similar levels of HH debt to GDP are seen in markets that developed in the recent past (e.g. Vietnam),’’ the brokerage added.

The sharp growth in certain segments of consumer credit had led to the banking regulator increasing the risk weights on unsecured loans such as personal loans and credit cards to 125 per cent from 100 per cent in November 2023. It meant that banks and non-banking finance companies (NBFCs) would have to set aside more capital while providing such loans.

According to the Bernstein report, consumer credit has been the Indian banking sector’s goldmine for the last decade accounting for more than 55 per cent of the total banking credit. However, the sharp growth in certain consumer loan segments in the last two-three years and recent RBI actions have raised concerns about the health of this segment.

It added that while the broader HH credit has largely grown in line with the system credit growth, consumer loans have grown at a much more rapid pace with their share of banking credit almost doubling from 16 per cent a decade ago to around 32 per cent currently.

However, it added that there are no signs of stress at an overall level.