Household Balance Sheet Stress Is Proof Of India's Cyclical Slowdown, Says Nomura

India's household balance sheet stress is further evidence of Nomura's view that India is in the midst of a cyclical slowdown. The other two factors which affirm the cyclical slowdown are weak income, and K-shaped recovery in urban consumption, the brokerage said.

Nomura estimates India's GDP to grow at 6.0% in the current financial year. In financial year 2026, growth is estimated to slow down to 5.9%, the brokerage said in a note on Thursday.

People who have higher credit risk for lenders are taking consumption loans, while those better off are taking on leverage to buy assets. This trend suggests a K-shaped credit market. In India, 60% of those taking personal loans had more than three live loans. Compounding the woes is the fact that RBI's macroprudential tightening has led to a decline in retail credit growth.

K-shaped recovery shows that one group is advancing, while another is on a downward trajectory.

Current household debt has risen to 43% of GDP from a little over 35% in March 2020, Nomura said, citing the Reserve Bank of India's Financial Stability Report. The share of consumption loans is increasing in the country, while asset creating loans are decreasing.

The RBI's stress test indicates that the GNPA1 ratio could rise to 3.0% by the financial year 2026 in the baseline scenario of robust growth and declining inflation. The write-offs of unsecured retail credit have increased sharply, and the delinquency rates have risen for the microfinance sector.