New Delhi
The Reserve Bank of India (RBI) has taken direct steps to control debt-fueled consumption, causing concerns in the stock market, according to a report by HDFC Securities. The report highlights worries from the stock market’s perspective as the central bank implements measures to curb personal loans, especially to subprime borrowers, amid the rapid growth of retail loans. Lending to subprime borrowers in India has become highly efficient due to digital technologies, making the process of attracting and screening borrowers, pooling loans, and finding deposit-taking institutions more streamlined. However, the report emphasizes that the significant growth of retail loans, outpacing total advances, could potentially spiral out of control and pose a risk for future challenges, particularly considering high unemployment and stagnant real wages. India has been a favored emerging market in 2023, attracting significant foreign investment even as funds have been withdrawn from many other developing economies. The country stands out with high economic growth, projected at 6% or more in 2023 and 2024, according to the International Monetary Fund (IMF). The report acknowledges India’s resilience amid global economic challenges, such as a strong dollar and a substantial increase in US interest rates. The RBI’s prudential measures against personal loans are seen as problematic for equity markets. Additionally, the report points out that the central bank’s actions raise concerns about potential challenges in managing debt-fueled consumption and the impact on economic stability. While India’s economic growth is expected to moderate in the second half of the year, driven by factors like lower agricultural output due to the El Nino phenomenon, Acuité Ratings & Research emphasizes that higher government expenditure and increased capital investments will continue to drive growth. Acuité has revised its GDP growth forecast to 6.5% for the entire year.
