India’s Household Leverage and the COVID-19 Crisis Ramifications for the Post-pandemic Recovery Phase

ABSTRACT

The outbreak of the COVID-19 crisis has deepened the recession in the Indian economy and caused a significant leap in household financial savings given their cutbacks in consumption and reduced demand for credit amid rising income uncertainties. Banks have also tightened lending due to asset quality concerns. This shift in household financial behaviour was caused by the continuous amplification of household leverage in the pre-COVID-19 years, resulting from a sharp increase in household financial liabilities on account of the robust growth in personal loans. As demonetisation created surplus liquidity in the banking system, it brought about a persistent build-up of unsecured household debt. This paper analyses trends in credit deployment across different sectors of the economy to illustrate the rising share of household credit concentrated in credit card receivables and other personal loans post demonetisation. © 2022 Economic and Political Weekly. All rights reserved.