Concerns are emerging about the apparent mismatch between robust growth in personal loans and the subdued expansion in private consumption. The question arises as to whether the significant surge in personal loans is being directed toward stock market speculations.
The second quarter of the current financial year witnessed a mere 3.1% growth in private final consumption, encompassing spending on goods and services. In contrast, personal loans recorded substantial growth, with a 30% increase in September, 31% in August, and 32% in July, based on Reserve Bank of India (RBI) data. The outstanding personal loans of commercial banks reached Rs 48.26 trillion as of September end.
While the specific use of personal loans remains elusive, there are indications that a noteworthy portion might be channeled into repaying existing loans or, intriguingly, into the stock market for speculative purposes. Without precise data on the end use of these loans, the motives behind borrowing are varied, with borrowers often citing ‘personal use’ in their documentation.
Chasing the Bull?
A trend that has caught attention is the surge in personal loans being utilised for stock market activities. The bull run in the stock market is seemingly enticing individuals to turn to personal loans as a means to engage in speculative investments, hoping to capitalize on the rising share prices. Experts caution that while this trend is on the rise, many individuals end up facing financial setbacks rather than gains.
Despite the surge in personal loans, the subdued growth in private consumption is being viewed cautiously. Experts suggest that the current scenario could be positive for the central bank, as the risk of an overheating economy remains low. This, in turn, reduces the potential risks associated with generalised inflation, balance of payments concerns, and currency volatility.
