a consumer credit crisis in India could derail economic recovery – About Your Online Magazine


A major risk to India’s economic recovery is that millions of families and small businesses may have the credit they need, according to JPMorgan’s chief emerging markets economist.

The government, the central bank and analysts are underestimating the level of permanent scarring that can occur in South Asia’s largest economy as a result of the contraction caused by last year’s pandemic, Jahangir Aziz said on Friday at CNBC’s “Squawk Box Asia.

Loss of income

People stand in line at a bus stop in Mumbai, India.

Ashish Vaishnav | SOPA images | LightRocket | Getty Images

Credit concerns in India

Indian micro, small and medium-sized enterprises contribute about 30% of nominal GDP and the sector is the country’s second largest employer, behind agriculture, according to the central bank.

To support these companies, the RBI introduced emergency credit schemes and implemented policy measures, such as interest rate cuts, a debt service moratorium and loan restructuring package.

According to local media reports, creditors said most of the single restructuring option was relied on for corporate loans and very few for retail loans, implying that people are paying on time or a default crisis may be lurking.

Another concern is that, with deteriorated balance sheets, small and medium-sized businesses may not get the loans they need in the future. That’s because, potentially, lenders may choose to lend only to larger companies that did relatively better during the crisis. Or they can charge smaller companies a higher premium for loans. The financial sector was already battling defaults before the pandemic arrived.

“So one of the main risks I have is that, exactly when we would like credit to increase, there would be a lot of people and SMEs that would not be able to get credit,” said Aziz.

In its half-year Financial Stability Report published in January, the RBI said it expects bad debt to rise to 13.5% in September, almost doubling from the 7.5% seen a year ago. If the situation gets worse, non-performing loans could rise by up to 14.8%, the central bank said.

Paula Fonseca