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31 Jul 2015 12:17 PM, Insights Priya Saha

How many households have outstanding bank loans?

Consumer Pyramids: 1.5%; AIDIS: 12%

Households in India generally, do not live beyond their means. Traditionally, they have refrained from borrowing to improve their standard of living. This is unlike the West where household borrowing is quite common. According to the All India Debt and Investment Survey (AIDIS) conducted by the National Sample Survey Organisation (NSSO), 31 per cent of rural households and 22 per cent of urban households were indebted as of June 2012.

Consumer Pyramids indicates a much lower incidence of indebtedness. Between September and December 2014, it found only 5 per cent of the households indebted. There wasn’t much difference between rural and urban regions. Indebtedness was 5.2 per cent in rural regions and 4.8 per cent in urban regions according to this survey.

The difference does not imply a fall in indebtedness between 2012 and 2014. The two surveys throw up very different estimates of indebtedness. Five per cent in one and 29 per cent in the other.

However, both surveys agree that the three biggest sources of borrowing are - banks, money-lenders and relatives & friends. Self-help groups, again according to both surveys, is a distant fourth.

Source Total Urban Rural
  Consumer Pyramids AIDIS Consumer Pyramids AIDIS Consumer Pyramids AIDIS
Banks 30 45 36 51 27 43
Money-lenders 22 36 25 27 20 39
Relatives & friends 32 6 27 19 34 2
Self-help groups 15 10 7 8 18 11

AIDIS estimates that a little over half of the urban households that have an outstanding loan have a borrowing from commercial and co-operative banks. Since in its estimate 22 per cent of the urban households have an outstanding loan, this implies that a substantial 11 per cent of all urban households have a bank loan outstanding against them. By a similar calculation, the AIDIS estimates imply that 13 per cent of all rural households have a bank loan outstanding against them. Or, one in every eighth household in India has a bank loan outstanding.

The Consumer Pyramids survey indicates a far more modest penetration of bank loans amongst households. 30 per cent of borrower households have a bank loan. Since borrower households are five per cent of all households, this implies that only 1.5 per cent of all households had a bank loan outstanding. Or, one in every 67 households in India has a bank loan outstanding.

Both surveys agree that non-institutional sources of funds, such as money-lenders, friends and relatives continue to play an important role in lending to households. Nearly half of the households that have a loan against them have borrowed from these sources. This shows the limited reach of banks in lending to households in India.