Motilal Oswal Financial Services

COPE

The Economy Observer

22 April 2024

Debt Dossier: India’s debt growth stable in 3QFY24

Household debt estimated at a new high in the quarter



India’s non-financial sector (NFS) debt is estimated to have grown 12.6% YoY in 3QFY24 (quarter-ending Dec’23), not very

different from the growth seen in recent quarters. Outstanding NFS debt touched USD5.85t (or INR486t) in 3QFY24,

equivalent to 168.7% of GDP, compared to 169.0% of GDP in 2QFY24 and 163.9% of GDP in 3QFY23. In real terms,

however, total debt (using GDP deflator) grew 10.8% YoY in 3QFY24, the slowest in three quarters.

Within NFS debt, non-government non-financial (NGNF) debt also grew 10.8% YoY in 3QFY24 (same as in 2QFY24), while

government debt jumped 14.3% YoY over the quarter (vs. 14.7% YoY growth in 2QFY24). Within the NGNF sector,

household (HH) debt jumped 16.5% YoY in 3QFY24, driven by a faster growth in the non-housing debt. Our estimates

suggest that household debt touched a new peak of 39.1% of GDP in 3QFY24, beating the previous peak of 38.6% of GDP

in 4QFY21. Corporate debt , however, rose by just 6.1% YoY during the quarter, easing to 15-year low of 42.7% of GDP.

An analysis of NGNF debt by sources/lenders suggests that NBFCs posted a strong lending growth of 20%+ YoY for the

third consecutive quarter in 3QFY24, while HFCs’ outstanding loans are estimated to have contracted in 3QFY24.

Scheduled commercial banks loans grew at the fastest pace in four quarters, while the growth in corporate bonds and

external borrowings moderated. Commercial papers issuances by the non-financial sector contracted again in 3QFY24.

Finally, although India’s debt is growing at a rapid pace compared to other major economies and the aggregate of

emerging markets worldwide, its debt-to-GDP ratio is still much lower than other economies.

India’s NFS debt stood at

USD5.85t (or INR486t) in

3QFY24 vs. USD5.7t/USD5.2t

(INR475t/INR432t) in

2QFY24/3QFY23

India’s NFS debt grew 12.6% YoY; stood at a six-quarter high of 168.7% of GDP in

3QFY24:

Our estimates suggest that India’s NFS debt stood at USD5.85t (or INR486t)

in 3QFY24 vs. USD5.7t/USD5.2t (INR475t/INR432t) in 2QFY24/3QFY23

(Exhibit 1).

NFS

debt grew 12.6% YoY in 3QFY24, not very different from 12.8%/13.1% YoY in

2QFY24/3QFY23. The growth in NGNF debt remained unchanged at 10.8% YoY in

3QFY24 (much lower than 13.8% YoY in 3QFY23), and the government debt increased

14.3% YoY, slightly lower than the seven-quarter high growth of 14.7% YoY in 2QFY24.

For the fourth consecutive quarter, the government debt grew faster than NGNF debt,

contributing ~58% to the growth in NFS debt in 3QFY24.

Exhibit 1:

India’s domestic NFS debt estimates

As a percentage of GDP

YoY (%)

FY20

FY21

FY22

FY23

3QFY23 2QFY24 3QFY24 2QFY24 3QFY24

Households (HH)

0.9

1.0

1.1

1.2

36.7

38.4

39.1

17.5

16.5

Non-financial corporate (NFC)

1.3

1.4

1.5

1.4

44.0

43.3

42.7

5.5

6.1

General government

2.0

2.4

2.7

2.8

83.2

87.3

86.9

14.7

14.3

Central government

1.3

1.6

1.8

1.9

55.5

59.3

59.0

17.0

16.3

State governments

0.7

0.8

0.9

27.6

28.0

27.9

10.1

10.3

Non-financial sector (NFS)

4.2

4.9

5.3

5.5

163.9

169.0

168.7

12.8

12.6

Non-government non-financial (NGNF)

2.2

2.5

2.6

80.7

81.7

81.8

10.8

Source: Reserve Bank of India (RBI), Ministry of Finance (MoF), Comptroller and Auditor General (CAG), Bloomberg, Company reports, MOFSL

USD t

Housing and mortgage debt are used synonymously in this analysis

The estimates of household debt in this study are slightly lower than the ones mentioned in our other research

report

(at 40% of GDP), since

the latter includes household loans from other financial institutions (apart from SCBs, NBFCs and HFCs), as reported by the RBI (up to 4QFY23).

The methodologies of the two estimates are different as the latter is more comprehensive.

Corporate debt is estimated as the residual, after deducting estimates of household debt from NGNF debt.

HDFC Ltd. is included under HFCs in this analysis. For housing debt, it is suggested to look at the aggregate, rather than SCBs or HFCs separately.

Our estimates in this report are based on internal calculations, for which the methodology is shared in the Appendix at the end of the report.

Bank for International Settlements (BIS) also provides India’s debt estimates, which are available up to 2QFY24 and different from our estimates.

Annualized nominal GDP = Sum of the last four quarters to smoothen the sharp changes in nominal GDP on a quarterly basis

Debt estimates of state governments (based on fiscal deficit of 27 states)

are prepared by us

Nikhil Gupta – Research Analyst

(Nikhil.Gupta@MotilalOswal.com)

Tanisha Ladha – Research analyst

(Tanisha.Ladha@MotilalOswal.com)

Investors are advised to refer through important disclosures made at the last page of the Research Report.

Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

Exhibit 2:

Nominal/real NFS debt grew 12.6%/10.8% YoY…

3QFY08

NFS debt

(% YoY)

NFS real debt

Exhibit 3:

…while debt-to-GDP ratio was 168.7% in 3QFY24

200

NFS debt (% of GDP)

181

145

170 167 169

12.6

10.8

150

100

3QFY12

3QFY16

3QFY20

3QFY24

FY12

FY15

FY18

FY21

3QFY24

NS debt deflated by GDP deflator

Please see Appendix at the end of the report for methodology

Source: RBI, MoF, CAG, Bloomberg, Company reports, CEIC, MOFSL

Compared to 12.8% nominal growth, NFS debt in real terms (using GDP deflator) grew

10.8% YoY in 3QFY24, which was the lowest in three quarters

(Exhibit 2).

Further,

since India’s annualized nominal GDP grew only 9.3% each in the last two quarters,

NFS debt stood at 168.7% of GDP, compared to 169.0%/163.9% of GDP in

2QFY24/3QFY23

(Exhibit 3).

GG debt stood at 86.9% of

GDP in 3QFY24, lower than

87.3% of GDP in 2QFY24,

but much higher than 83.2%

a year ago

Government debt continued to grow strongly in 3QFY24…:

NFS includes three

major domestic economic sectors – Households (HH), non-financial companies

(NFCs, private and state-owned), and general government (GG, Center + States).

During the last four quarters (since 4QFY23), NGNF debt grew slower than

government debt, thus, contributing less to the NFS debt growth. GG debt grew

14.3% YoY, slightly lower than the seven-quarter high growth of 14.7% YoY in 2QFY24,

but faster than 10.8% YoY growth seen in NGNF debt

(Exhibit 4).

Our estimates also

suggest that GG debt stood at 86.9% of GDP in 3QFY24, lower than 87.3% of GDP in

2QFY24, but much higher than 83.2% a year ago. The Center and state governments’

debt jumped 16.3% and 10.3% YoY, respectively, in 3QFY24. Accordingly, the

center’s debt stood at 59% of GDP in 3QFY24, very close to 18-year high of 59.3% in

the previous quarter (and up from 55.5% of GDP in 3QFY23). In contrast, states’

debt, at 27.9% of GDP, has been largely unchanged for the past seven quarters.

Exhibit 5:

HH debt continued to grow much faster than

corporate debt

Household debt

(% YoY)

NFCs debt

Exhibit 4:

NGNF debt grew slower than government debt for

the fourth straight quarter in 3QFY24

3QFY16

Government debt

(% YoY)

NGNF debt

14.3

10.8

16.5

6.1

3QFY18

3QFY20

3QFY22

3QFY24

3QFY20

3QFY21

3QFY22

3QFY23

3QFY24

Source: RBI, MoF, CAG, Bloomberg, Company reports, CEIC, MOFSL

22 April 2024

NGNF debt growth was

10.8% YoY in 3QFY24, the

same as in 2QFY24, but

weaker than 13.8% growth

in 3QFY23

…with household debt likely at all-time high:

In contrast, NGNF debt growth was

10.8% YoY in 3QFY24, the same as in 2QFY24, but weaker than 13.8% growth in

3QFY23. As a percentage of GDP, NGNF debt is estimated at 81.8% in 3QFY24, the

highest in seven quarters, but lower than its all-time peak of 91.1% in 4QFY21. For

almost a decade, between FY12 and FY21, NGNF debt (as percentage of GDP) was

higher than the government debt in India, which has reversed since FY22. Now the

government debt is higher than NGNF debt in India, just like in the pre-FY12 period.

Within the NGNF sector, HH debt spiked at 16.5% YoY in 3QFY24, marking the slowest

pace in six quarters. In contrast, corporate debt grew by only 6.1% YoY during the

quarter, nearly as weak as 5.5% YoY growth in 2QFY24 and slower than the 10% YoY

growth in 3QFY23

(Exhibit 5).

Household sector accounted for almost 70% of the

growth in NGNF debt in 3QFY24.

HH debt spiked at 16.5% YoY

in 3QFY24, marking the

slowest pace in six quarters

Since HH debt grew faster than nominal GDP, it surged to 39.1% of GDP in 3QFY24,

marking its new high and beating its previous peak of 38.6% of GDP in 4QFY21

(Exhibit 6).

NFCs debt, according to our estimates, stood at a 15-year low of 42.7% of

GDP in 3QFY24, compared to 44% of GDP in 3QFY23. Interestingly, household debt

now accounts for about 48% of NGNF debt, compared to 40% in FY20.

Exhibit 7:

…and non-housing debt surged faster than

housing debt

Housing

36 38

(% YoY)

Non-Housing

Exhibit 6:

HH debt-to-GDP increased to a new peak of 39.1%

of GDP in 3QFY24…

HH debt (% of GDP)

18.3

12.2

FY12

FY14

FY16

FY18

FY20

FY22

3QFY24

3QFY20

3QFY21

3QFY22

3QFY23

3QFY24

Source: RBI, MoF, CAG, Bloomberg, Company reports, CEIC, MOFSL

Non-housing debt increased

18.3% YoY, while housing

debt grew 12.2% YoY in

3QFY24

Importantly, within HH debt, non-housing debt continued to grow much faster than

housing debt

(Exhibit 7).

Non-housing debt increased 18.3% YoY, while housing debt

grew 12.2% YoY in 3QFY24. Accordingly, non-housing debt accounted for 72% of HH

total debt. As highlighted in our

recent report,

while housing debt is very low in

India compared with other economies, the non-mortgage HH debt is the same as in

Australia and Japan, and higher than the world’s several other major nations.

There are six major official sources from where a company or an individual can

borrow in the country – scheduled commercial banks (SCBs), non-banking finance

companies (NBFCs), housing finance companies (HFCs), corporate bonds (CBs),

commercial papers, and foreign borrowings (also known as ECBs). An individual can

borrow from the first three sources, while NFCs can raise borrowings through any of

these six sources. To estimate the true extent of India’s debt, we have adjusted the

intra-financial sector lending (SCBs to NBFC/HFCs, etc.). Please refer to

Appendices 1

and 2

at the end of the report for further details.

Sources of borrowings for the NGNF sector

22 April 2024

Bank lending to the NGNF

sector rose 11.1% YoY in

3QFY24, the highest in four

quarters, but slower than

14.9% YoY growth in

3QFY23

An analysis of NGNF debt by sources/lenders suggests that the bank lending

(excluding HDFC Ltd.) to the NGNF sector (after adjusting for intra-financial sector

loans) rose 11.1% YoY in 3QFY24, the highest in four quarters, but slower than

14.9% YoY growth in 3QFY23. This is in stark contrast to unadjusted banks’ loan

book, since a larger portion (as much as 12.4% now) is directed toward other

financial companies. Corporate bond issuances (after adjusting for the financial

sector) grew 7.6% YoY last quarter (weaker than 10%/13.4% growth in

2QFY24/3QFY23), ECBs recorded a growth of only ~4%, and CPs posted another

contraction in 3QFY24.

NBFCs loan book, on the other hand, grew 23.5% YoY in 3QFY24, posting more than

20% YoY growth for the third straight quarter. With such strong growth, its share in

NGNF debt jumped to 16.4% in 3QFY24, the highest on record, and 14.8% a year

ago.

HFCs loan book (including HDFC Ltd.) contracted 2.0% YoY during the quarter, as

HDFC ltd. is running down its book, along with Indiabulls housing finance. The

combined loan book of NBFCs and HFCs – about 23% of NGNF debt – grew 15.3%

YoY in 3QFY24, the slowest pace in three quarters but much higher than 11.5% a

year ago. This implies that NGNF debt, excluding NBFCs/HFCs, increased by just 9.6%

in 3QFY24.

NBFCs loan book, on the

other hand, grew 23.5% YoY

in 3QFY24, posting more

than 20% YoY growth for

the third straight quarter

Exhibit 8:

Drivers of NGNF debt growth

FY20

FY21

FY22

Banks*

94.4

99.8

109.8

NBFCs

24.6

27.0

29.1

HFCs~

12.2

12.9

13.4

Corporate bonds#

20.2

21.6

25.7

Commercial paper@

2.3

2.4

2.3

ECBs^

14.9

17.2

17.4

NGNF debt

168.6

181.0

197.7

Memo: NBFCs + HFCs

36.8

40.0

42.5

Total excl. NBFCs + HFCs

131.8

141.0

155.2

Non-bank lenders

74.2

81.2

87.9

*Excludes loans to the financial sector

#Excludes corporate bonds issued by SCBs, NBFCs, and Banks

^Excluding FII investments in corporate bonds

INR t

FY23

120.6

33.7

14.0

26.7

2.1

19.1

216.3

47.7

168.5

95.6

YoY (%)

3QFY23

4QFY23

1QFY24

2QFY24

3QFY24

14.9

9.9

10.2

10.0

11.1

12.2

16.1

22.1

25.8

23.5

9.9

8.6

11.8

0.4

-2.0

13.4

4.1

10.3

10.0

7.6

-2.3

-10.5

9.9

-11.9

-5.8

15.0

9.8

1.9

4.7

4.2

13.8

9.7

11.3

10.8

11.5

13.7

18.8

17.4

15.3

14.4

8.6

9.2

9.0

9.6

12.3

9.5

12.6

11.8

10.4

~HDFC Ltd. included in HFCs, not Banks, for comparison purposes

@Excludes commercial paper issued by NBFCs

Source: RBI, Company reports, Bloomberg, CEIC, MOFSL

A comparison of India’s NGNF debt with a few other major economies (the US, the

UK, Japan, Eurozone (EZ) and China) confirms that while India’s debt is growing at

the fastest pace among these nations, its debt-to-GDP ratio remains significantly

lower than world’s other major and large economies.

India’s NGNF debt grew 10.8% YoY in 3QFY24, compared to 8.4% growth in China,

2.0-2.5% growth in the US, the UK, and Japan and only 0.7% YoY growth in EZ

(Exhibit 9).

While India’s debt has grown faster than in most rich nations (because of

the size, base, and potential), it has outpaced the growth in China’s debt during the

past eight quarters as well. India’s NGNF debt growth has mostly been in low

double-digits since 4QFY22 (or 1QCY22), while China’s NGNF debt has increased by

8-10% during these quarters.

22 April 2024

Comparison

of India’s debt with other major nations

India’s debt-to-GDP ratio is

lower than major nations,

but not low compared to

other E&DEs

Nevertheless, India’s debt-to-GDP ratio is much lower than these economies. At its

peak, NFS debt was at 290-310% of GDP each in the US, the UK, and EZ in

4QCY20/1QCY21; it was 430% of GDP in Japan and 181% in India. As of 3QFY24 (or

end-CY23), debt-to-GDP ratio in all these economies was much lower than its peak

(Exhibit 10).

While it was 168.7% of GDP in India in 3QFY24, it remained above 200%

of GDP in most rich economies (from 228% of GDP in the UK to 270% in the US) and

more than 400% in Japan.

Due to the pandemic, China’s debt-to-GDP ratio also jumped to 271.2% in 3QCY20

from 247% in late-CY19. Like in other nations, the ratio started falling in CY21 and

stood at 262.8% at end-CY21. However, it started rising once again in CY22 and

stood at its all-time peak of 287.8% in 4QCY23.

Exhibit 9:

India’s NGNF debt growing faster than world’s

other major economies…

NGNF debt grrowth (% YoY)

Japan

China

India

Exhibit 10:

…but is still much lower than other nations as %

of GDP

(% of GDP)

CY19

430

291

256 270

311

263

391 410

288

247

288

181

156 169

Japan

China

India

294

258 242

CY23

COVID-peak*

10.8

8.4

2.2

228

0.7

-5

3QFY18 3QFY19 3QFY20 3QFY21 3QFY22 3QFY23 3QFY24

* 3QFY21 in the UK/Japan, 4QFY21 in the US/India/EA

Source: Various national sources, CEIC, MOFSL

Overall, our estimates suggest that corporate debt growth continues to remain

sluggish, while household and government debt experienced faster growth in India

in 3QFY24. These trends have been observed in the recent few quarters and broadly

align with the investment growth observed by these economic participants. Further,

household debt is estimated to have reached a new peak, but non-housing loans

grew faster than housing loans for the sixth successive quarter in 3QFY24.

22 April 2024

Appendix: Estimating total debt in the domestic NGNF sector

SCBs, NBFCs, and HFCs are the three major institutional sources of lending available

to the HH and corporate sectors, which together constitute the NGNF sector. We

use loans and advances data from these financial companies to estimate the total

debt of the NGNF sector. Apart from these three sources, the NGNF sector borrows

through CPs, CBs, and ECBs. We gather data on the following six relevant

parameters, making suitable adjustments to avoid double counting:



SCBs’ loans and advances, excluding their lending to the financial sector. We

have excluded HDFC Ltd from the SCBs’ data for comparison purposes.



Loan book data for NBFCs from the RBI’s annual/bi-annual publications (titled:

‘Report

on Trend and Progress of Banking in India’,

‘Financial

Stability Report’)

–

available up to 1HFY24. For quarterly data, we have compiled the data of 17

NBFCs, accounting for about three-fifths of the entire industry

(list of NBFCs is

provided in Exhibit 9).



The loan book for HFCs that is also available from the RBI’s

Report on Trend and

Progress of Banking in India and National Housing Bank Report,

which provides

data up to FY23. For quarterly data, we have compiled the data of nine HFCs

(including HDFC Ltd), accounting for ~80% of the entire industry

(list of HFCs is

provided in Exhibit 13).



Outstanding corporate bonds, adjusted for debentures, issued by NBFCs, HFCs,

and Tier II capital of SCBs (assumed at 2% of Banks’ loan books).



Outstanding CPs, adjusted for NBFC/HFC issuances.



Long- and short-term external debt (ECBs + INR debt) raised by the NGNF sector,

adjusted for Foreign Institutional Investor (FII) exposure to corporate bonds.

Exhibit 11:

List of 17 NBFCs and 9 HFCs used for quarterly analysis

NBFCs (~60% of the industry)

1. Bajaj Finance

2. Cholamandalam Investment and Finance Co

3. IIFL Finance

4. JM Financial

5. L&T Financial

6. Mahindra & Mahindra Finance

7. Magma Finance

8. Manappuram Finance

9. Muthoot Finance

10. Reliance Capital

11. Shriram Finance

12. Sundaram Finance

13. Power Finance

14. REC

15. PTC India financial services Ltd.

16. Piramal Finance

17. Aditya Birla Capital

HFCs (~83% of the industry)

1. HDFC

2. HUDCO

3. LIC Housing

4. Indiabulls Housing

5. Sundaram BNP Finance

6. PNB Housing Finance

7. Canara Home Finance

8. Reliance Home Finance

9. Repco Home Finance

22 April 2024

The methodology used for estimating the total debt in the country

Scheduled

commercial

banks (SCBs)

Households (HH)

Non-banking

financial

companies

(NBFCs)

Housing

Finance

Companies

(HFCs)

Non-financial

corporate sector

Corporate

bonds (CBs)

Non-

financial

sector

(NFS) debt

Commercial

papers (CPs)

External

sector

General government

(Center + states)

Others* (RBI,

corporate

sector, etc.)

22 April 2024

NOTES

22 April 2024

Explanation of Investment Rating

Investment Rating

BUY

SELL

NEUTRAL

UNDER REVIEW

NOT RATED

Expected return (over 12-month)

>=15%

< - 10%

< - 10 % to 15%

Rating may undergo a change

We have forward looking estimates for the stock but we refrain from assigning recommendation

*In case the recommendation given by the Research Analyst is inconsistent with the investment rating legend for a continuous period of 30 days, the Research Analyst shall be within following

30 days take appropriate measures to make the recommendation consistent with the investment rating legend.

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The Research Analysts contributing to the report may not be registered /qualified as research analyst with FINRA. Such research analyst may not be associated persons of the U.S. registered

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Specific Disclosures

1 MOFSL, Research Analyst and/or his relatives does not have financial interest in the subject company, as they do not have equity holdings in the subject company.

2 MOFSL, Research Analyst and/or his relatives do not have actual/beneficial ownership of 1% or more securities in the subject company

3 MOFSL, Research Analyst and/or his relatives have not received compensation/other benefits from the subject company in the past 12 months

4 MOFSL, Research Analyst and/or his relatives do not have material conflict of interest in the subject company at the time of publication of research report

5 Research Analyst has not served as director/officer/employee in the subject company

6 MOFSL has not acted as a manager or co-manager of public offering of securities of the subject company in past 12 months

7 MOFSL has not received compensation for investment banking/ merchant banking/brokerage services from the subject company in the past 12 months

8 MOFSL has not received compensation for other than investment banking/merchant banking/brokerage services from the subject company in the past 12 months

9 MOFSL has not received any compensation or other benefits from third party in connection with the research report

10 MOFSL has not engaged in market making activity for the subject company

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22 April 2024

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The associates of MOFSL may have:

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date of the public appearance.

- received compensation/other benefits from the subject company in the past 12 months

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even though there might exist an inherent conflict of interest in some of the stocks mentioned in the research report.

- acted as a manager or co-manager of public offering of securities of the subject company in past 12 months

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company(ies) discussed herein or act as an advisor or lender/borrower to such company(ies)

- received compensation from the subject company in the past 12 months for investment banking / merchant banking / brokerage services or from other than said services.

- Served subject company as its clients during twelve months preceding the date of distribution of the research report.

The associates of MOFSL has not received any compensation or other benefits from third party in connection with the research report

Above disclosures include beneficial holdings lying in demat account of MOFSL which are opened for proprietary investments only. While calculating beneficial holdings, It does not

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Analyst Certification

The views expressed in this research report accurately reflect the personal views of the analyst(s) about the subject securities or issues, and no part of the compensation of the

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This report has been prepared by MOFSL and is meant for sole use by the recipient and not for circulation. The report and information contained herein is strictly confidential and

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The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or

distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent. This report and information herein is solely for

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The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment

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document (including the merits and risks involved), and should consult its own advisors to determine the merits and risks of such an investment. The investment discussed or views

expressed may not be suitable for all investors. Certain transactions -including those involving futures, options, another derivative products as well as non-investment grade

securities - involve substantial risk and are not suitable for all investors. No representation or warranty, express or implied, is made as to the accuracy, completeness or fairness of

the information and opinions contained in this document. The Disclosures of Interest Statement incorporated in this document is provided solely to enhance the transparency and

should not be treated as endorsement of the views expressed in the report. This information is subject to change without any prior notice. The Company reserves the right to make

modifications and alternations to this statement as may be required from time to time without any prior approval. MOFSL, its associates, their directors and the employees may from

time to time, effect or have effected an own account transaction in, or deal as principal or agent in or for the securities mentioned in this document. They may perform or seek to

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Registration details of group entities.: Motilal Oswal Financial Services Ltd. (MOFSL): INZ000158836 (BSE/NSE/MCX/NCDEX); CDSL and NSDL: IN-DP-16-2015; Research

Analyst: INH000000412 . AMFI: ARN .: 146822. IRDA Corporate Agent – CA0579. Motilal Oswal Financial Services Ltd. is a distributor of Mutual Funds, PMS, Fixed Deposit,

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22 April 2024