The Economy Observer
6 October 2020
India’s debt growth remains tepid in 1QFY21
Things could, however, change in 2QFY21
The outstanding debt of India’s non-financial sector (NFS
) stood at INR322t or 167.3% of GDP in 1QFY21 (or 2QCY20), up
from around 153% in the past few quarters. 9.1% YoY growth in NFS debt and 0.6% YoY decline in annualized nominal
led to a jump in NFS’ debt-to-GDP ratio in 1QFY21.
Within NFS, general government (center + states
) debt grew at a 30-quarter high pace of 14.3% YoY. Moreover, non-
government non-financial (NGNF
) debt grew 4.6% YoY in 1QFY21 (against record-low growth levels of 4% in 4QFY20).
Within the NGNF sector, household debt grew at near-record lows of 6% YoY in 1QFY21 (8.9% in 4QFY20, but slowest
growth of 5.7% in 4QFY09). Additionally, non-financial corporate (NFC) debt grew 3.7%, the second lowest to record-low
growth levels of 1% in 4QFY20. A look at long-term trends suggests the country’s debt growth weakened to the single
digits for the first time in two decades in 2QFY20, and COVID-19 failed to change this in 1QFY21.
Details of NGNF debt suggest: (a) banks’ lending grew 5% YoY in the quarter (v/s record-low growth of 4.7% in 4QFY20);
(b) borrowings through corporate bonds (CBs) grew ~6% YoY (v/s 0.5% in 4QFY20); and (c) external commercial
borrowings (ECBs) grew 12.5% in 1QFY21 (similar to 12.4% in the previous quarter). In contrast, lending by NBFCs grew at
record-low levels of just 3.6% in 1QFY21, and HFCs’ loan book grew marginally (0.3% YoY) after declining for the first
time in 4QFY20.
Due to COVID-19 and the related collapse in economic activity, a jump in the debt-to-GDP ratio across nations was
inevitable. However, the pickup in India’s debt growth in 1QFY21 was only marginal v/s the previous few quarters. NFS
debt growth was the highest in 15 years in the US (at 11.7%), the highest in 11 years in the UK (at 10.2%), the highest in
24 years in Japan (at 4.6%), and the highest in 10 quarters in China (at 12.4%). Since the credit guarantee scheme in India
was announced in mid-May’20 (later v/s other major nations), NGNF debt could grow faster in 2QFY21.
India’s NFS debt grew 9.1% YoY to reach 167.3% of GDP in 1QFY21:
suggest India’s NFS debt stood at INR322t in 1QFY21, up from INR312t in 4QFY20
and INR295t in 1QFY20. Almost the entire QoQ increase was attributable to
government debt as NGNF debt remained broadly unchanged
average growth of 9% in FY20, India’s NFS debt grew 9.1% YoY in 1QFY21 – the
highest in the past four quarters, but slower than growth in the previous quarters
Furthermore, NFS debt rose from 153% of GDP over the past three years
to an all-time peak of 167.1% in 1QFY21
Estimates of India’s non-financial sector (NFS) debt
% of (annualized
Non-financial corporate (NFC*)
General government (GG)
Non-financial sector (NFS )
Non-government non-financial (NGNF)
* Please see Appendix at end of the report for methodology
Source: Reserve Bank of India (RBI), Government finances, Bloomberg, NBFCs/HFCs company reports, CEIC, MOFSL
Non-financial sector = Non-financial corporate sector + Household sector + General government (Center + states)
Annualized nominal GDP = sum/average of last four quarters to smoothen the sharp changes in nominal GDP on quarterly basis
Debt of state governments in 1QFY21 is our estimates based on fiscal deficit of 16 states (21 states in FY19 and 19 states in FY20)
Our previous publications cover only NGNF (non-financial corporate + households) sector. We have improved our database by including government debt
on quarterly basis from this quarter onwards.
Nikhil Gupta – Research Analyst
– Research Analyst
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.