The middle class of India sinks into a massive debt trap, and the figures get worse. In a recent podcast, the founder and director of investments at Marcellus, investment managers, Sarabh Mukherjea, reported a disturbing reality – millions of middle class Indians have granted several loans that they could never reimburse.
The panels are everywhere: the soaring of personal loans, the increase in credit card debt and an increasing number of borrowers who find it difficult to respond to daily expenses.
“The middle class took the hand on the fist,” said Mukherjea, citing RBI data. “Over the past decade, loan and retail credit card loans have increased from 4% to 11% of the total credit system in circulation. It is not only the loan for investment – it is borrowing to survive.”
Mukherjea underlined the RBI Financial Stability Review (FSR), which depicts a disastrous image of the middle class debt in India:
- 45% of India borrowers are subprime, which means that they have poor solvency and run a high risk of defect.
- 48% of the debt contracted by these subprime borrowers concerns consumption, not the creation of assets.
“This means that almost half of what these financially vulnerable borrowers simply have to support their daily life,” said Mukherjea. “It’s not for investments, not for wealth creation – just for survival.”
5 to 10% of the middle class of India is in a trap
Mukherjea’s analysis suggests that between 5 to 10% of the middle class Indians have entered a debt spiral, where they have contracted several loans, they will probably never be able to reimburse completely. He breaks down using RBI data and credit office reports:
- 67% of Indians in the middle class have contracted personal loans.
- 25% of all borrowers have a credit card, personal loan and at least another high ticket loan.
- 45% of the total borrowers are subprime and half of their loan is just for daily needs.
“When you assemble these figures, it is clear that 5 to 10% of the middle class India is trapped in debt,” warned Mukherjea. “These are people with modest incomes that have accumulated loans that they simply cannot reimburse.”
https://www.youtube.com/watch?v=dkpwtvfho5q
Mukherjea warned that this problem will not disappear anytime soon. “Each passing year, this problem will grow, unless it is actively addressed,” he said. “If you are a middle class Indian struggling with a debt, ask for financial advice before he hides further.”
