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Mint
4 days ago
- Business
- Mint
Falling into a debt trap? Here's how to get out of it, step by step
India's relationship with personal debt is undergoing a troubling shift. Around 68% of Indian borrowers are under some form of debt distress as they are unable to manage their loans. Household debt stood at 42.9% of the GDP (as of June 2024), up from 38.3% just one year ago. This means families are borrowing more and saving less. The culprit is the way people borrow, spend, and plan their money. What was once a symptom of poor financial planning has evolved into a systemic issue. According to the Reserve Bank of India's Financial Stability Report (Dec 2024), nearly half of all individuals with personal loans or credit cards also hold an active home or car loan. To add insult to injury, non-housing loans grew by 18% year-on-year (Y-o-Y), making up 72% of all household debt. Meanwhile, housing loan growth was only 12% Y-o-Y. Taking a closer look at the spending pattern, a deeper issue comes to light. In the 2024 festive season alone, consumer durable loans went up by 27%, and personal loans rose by 13%. Even the average loan ticket size for consumer durables increased by 16%. This shows that not only are people buying more, but they are also buying bigger. This borrowing behaviour signals a mindset shift from 'borrowing for asset creation' to 'borrowing for lifestyle upgrades'. And with many already juggling multiple loans, this shift is the perfect recipe for a debt trap. Most debt traps begin with not having a budget for essential and non-essential expenses. But this simple oversight can snowball. Before you know it, you are overspending on things you do not need just for instant gratification. Then the next misstep: treating credit card limits as spending power. Many convert credit bills into EMIs, which add long-term interest to short-term indulgences. And when these EMIs pile up, you try to escape with the help of fast-loan apps, only to stack more expensive loans on top of existing ones. Eventually, EMIs outpace income, and defaults start. With every delayed EMI, the credit score drops, shrinking access to affordable loans even further. It's a vicious cycle. One of the tried and tested ways to break the debt trap cycle is by adopting the '3 bank accounts' system. Earnings account: Use this account to receive your salary, and once it is credited, split funds into the other two accounts as per your budget. Spending account: This account is just for paying bills, EMIs, credit card payments, and non-essential expenses (stop when it runs dry). Investment account: Do not use this account for anything other than your SIPs and long-term investments. This will help you keep your overspending in check while also inculcating disciplined investment habits. Note: This is a personal classification that you do for yourself; such classifications are not offered by the bank. If a debt trap announced itself, far fewer people would fall victim to it. Here are the red flags you shouldn't ignore: EMIs consume more than 50% of your in-hand salary You can't save for emergencies or future goals Your expenses are more than your income You're only paying the minimum due on credit cards You've withdrawn cash using your credit card to cover daily expenses Your new loan applications are being rejected You're missing utility bill payments, like electricity or rent If any of these signs seem relatable, then it's time to take action. Finology Research Desk has mapped clear steps to help you avoid this fate. Understand that debt is not a villain. Loans that build long-term value (education, home, or business loans) are generally classified as "good" debt. They contribute to your net worth. In contrast, loans for depreciating assets (cars or bikes) or lifestyle expenses (consumer durable EMI, credit card loans) are "bad" debt. These drain your finances without future returns, and must be paid off as soon as possible. Source: Finology Research Desk Your budget should match your repayment capacity, not your lifestyle aspirations. A sound rule you can follow is: 40% of income for EMIs 15% for savings and insurance 40% for essential expenses 5% cash buffer Source: Finology For instance, on a ₹ 50,000 salary, ₹ 20,000 should be your EMI ceiling. That gives you a total loan capacity of roughly ₹ 9–10 lakh at 12% interest over 5 years. Overshooting this means your financial structure is built on instability. EMI Calculators Source: Finology Calculators List all your loans, note their interest rates and outstanding amounts. Be intelligent about repayments Then use the 'snowball method'. Pay only the minimum dues on all your loans and credit cards. Then, focus on closing the smallest outstanding loans first. These often have lower EMIs or smaller balances, freeing cash. This also builds momentum. Small wins create a sense of progress, boost motivation, and help you stay committed to clearing the next one. Once you are done with that, switch to the 'avalanche method'. Redirect your newly freed-up money toward the loans with the highest interest rates, typically credit card balances or short-term personal loans. This will help you reduce your total interest burden, even if the loans themselves are larger. If managing your current EMI is problematic, adjust it. You can extend the loan duration for personal or car loans to lower your monthly EMI burden. You can also use cheaper credit to pay off expensive debt: If you already have a home or car loan, check if you can borrow a little more under the same loan at a lower rate. Gold loans are another option. They usually come with much lower interest rates and are easy to access. This helps you replace loans charging 24% to 36% interest with those under 12%, easing your burden and freeing up your monthly cash. Debt traps do not announce themselves; they slowly creep in with unchecked spending and ignored budgets. Soon, credit card EMIs pile up, and high-interest loans stack up just to stay afloat. Today, non-housing loans make up 72% of household debt, driven by style borrowing and poor credit choices. Finology Research Desk advocates a practical approach: separate good and bad debt, restructure when needed, and stay disciplined. And still, if you are not sure where you stand? Try Finology recipe's Financial Health Check-up to assess your debt situation and start correcting course. Finology is a SEBI-registered investment advisor firm with registration number: INA000012218. Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
Time of India
04-06-2025
- Business
- Time of India
Share of high cost deposits double in two years
The share of term deposits earning 7% and above has more than doubled to 72.94% in March, latest central bank data showed. Rates climbed as banks competed for funds amid a cumulative 225 225 basis point increase in the previous cycle of rate hardening, which sought to restrain inflation spawned by the Covid-era policy easing. One basis point is a hundredth of a percentage point. Experts said the trend also marks a shift away from retail to bulk deposits, and despite the start to an easing cycle, deposits would continue to be costly through FY26, potentially crimping margin expansion at mainstream lenders. 'Besides the transmission of rate hikes in the cost of deposits continuing until FY25, the share of pricier bulk deposits had also been rising for the last few years,' said Sachin Sachdeva, vice president, sector head - financial sector ratings, Icra . The flow of funds from retail investors to capital markets (debt or equity) led to a change in the composition of deposits (from retail to wholesale). Live Events 'Consequently, the banking sector witnessed persisting high cost of deposits in FY25,' explained Sachdeva. The number of demat accounts and mutual fund contributions have continued to hit successive records since the pandemic, indicating both financialization of savings and an evident deepening of the equity culture that intensified competition for deposits. With high-cost deposits accounting for close to three fourth of the deposits mobilised by the commercial banks, there could be pressure on the interest income margins even in FY26, as the impact of the recent 50 bps rate easing would impact the deposit costs only with a lag. 'As for the outlook for FY26, even though the rate cycle has reversed…, the transmission of these (cuts) into reduced cost of deposit would happen with a lag unlike in the case of transmission in lending rates, which happens faster, given high share of external benchmark linked loans' said Sachadeva 'Hence, interest margins for banks are likely to compress by around 10 bps in FY26.' Even the central bank's latest Financial Stability Report acknowledges the shift toward high-cost deposits. 'Against the backdrop of the recent monetary policy tightening cycle in India, bank deposits continue to exhibit double digit growth, but their profile has gradually shifted toward schemes offering higher returns,' said the report.
Economic Times
18-05-2025
- Business
- Economic Times
Is Canada headed for a recession? Here're the details
Canada is facing a possible recession because of global trade issues. Traditional signs like GDP growth and job losses are worrying. Unemployment has increased, and forecasts predict slow growth. Consumer confidence is mixed, with some fearing a downturn. Unusual economic indicators are also being watched. The future is uncertain due to tariffs and other economic problems. Tired of too many ads? Remove Ads Traditional Indicators Point to Trouble Deloitte warns of a looming downturn, citing weak GDP growth and falling investment. Oxford Economics projects just 0.7% growth in 2025, followed by a 0.2% contraction in 2026, driven by global trade shocks and reduced immigration. RBC anticipates continued slowing of growth into 2026. Tired of too many ads? Remove Ads Consumer Confidence: A Mixed Signal Reading the Quirky Economic Tea Leaves The 'lipstick effect': People splurge on small luxuries during tough times. Greenspan's 'men's underwear index': Underwear sales dip during recessions, as it's one of the easiest purchases to delay. The 'cardboard box recession': A drop in demand for cardboard boxes, according to Charles Schwab's Jeffrey Kleintop, may indicate a slowdown in manufacturing. The 'Skyscraper Index': Economist Andrew Lawrence notes that the construction of record-breaking skyscrapers often precedes economic downturns. Uncertainty Reigns As global trade tensions escalate, Canada finds itself on the brink of a potential recession, with both traditional and unconventional indicators flashing warning C.D. Howe Institute defines a recession as a "pronounced, persistent, and pervasive decline in aggregate economic activity," typically marked by two consecutive quarters of declining GDP. Current forecasts suggest storm clouds may be gathering:Meanwhile, Canada's job market is under strain. As of April 2025, the unemployment rate rose to 6.9% — the highest since November 2023 — leaving more than 1.6 million Canadians out of work. That month, the economy lost 30,000 jobs, while adding just 7,400 new Bank of Canada, in its recent Financial Stability Report, outlined scenarios in which prolonged U.S. tariffs could trigger a year-long recession, with GDP declining for four consecutive sentiment is sending more ambiguous signals. The Bloomberg-Nanos Canadian Confidence Index rebounded to 48.6 as of May 9, approaching the neutral 50-point threshold. Data scientist Nik Nanos attributes the boost to the election of Prime Minister Mark some economists warn the rebound may not last. Walid Hejazi, professor at the University of Toronto, notes that fear alone can drive downturns. 'If consumers fear a recession is coming,' he says, 'they may reduce their spending, and reduced consumer spending makes the economy slow down even more.'Beyond the traditional data, economists are watching more unusual trends:The road ahead is anything but clear. Isabelle Salle, a behavioral macroeconomics professor at the University of Ottawa , says we're navigating uncharted waters.'Tariffs and this uncertainty shock just added to existing problems, at the worst time possible,' she explains. 'With uncertainty, you cannot easily assign probabilities to the different scenarios. You really have to operate with just options.'
Time of India
18-05-2025
- Business
- Time of India
Is Canada headed for a recession? Here're the details
Canada is facing a possible recession because of global trade issues. Traditional signs like GDP growth and job losses are worrying. Unemployment has increased, and forecasts predict slow growth. Consumer confidence is mixed, with some fearing a downturn. Unusual economic indicators are also being watched. The future is uncertain due to tariffs and other economic problems. Tired of too many ads? Remove Ads Traditional Indicators Point to Trouble Deloitte warns of a looming downturn, citing weak GDP growth and falling investment. Oxford Economics projects just 0.7% growth in 2025, followed by a 0.2% contraction in 2026, driven by global trade shocks and reduced immigration. RBC anticipates continued slowing of growth into 2026. Tired of too many ads? Remove Ads Consumer Confidence: A Mixed Signal Reading the Quirky Economic Tea Leaves The 'lipstick effect': People splurge on small luxuries during tough times. Greenspan's 'men's underwear index': Underwear sales dip during recessions, as it's one of the easiest purchases to delay. The 'cardboard box recession': A drop in demand for cardboard boxes, according to Charles Schwab's Jeffrey Kleintop, may indicate a slowdown in manufacturing. The 'Skyscraper Index': Economist Andrew Lawrence notes that the construction of record-breaking skyscrapers often precedes economic downturns. Uncertainty Reigns As global trade tensions escalate, Canada finds itself on the brink of a potential recession, with both traditional and unconventional indicators flashing warning C.D. Howe Institute defines a recession as a "pronounced, persistent, and pervasive decline in aggregate economic activity," typically marked by two consecutive quarters of declining GDP. Current forecasts suggest storm clouds may be gathering:Meanwhile, Canada's job market is under strain. As of April 2025, the unemployment rate rose to 6.9% — the highest since November 2023 — leaving more than 1.6 million Canadians out of work. That month, the economy lost 30,000 jobs, while adding just 7,400 new Bank of Canada, in its recent Financial Stability Report, outlined scenarios in which prolonged U.S. tariffs could trigger a year-long recession, with GDP declining for four consecutive sentiment is sending more ambiguous signals. The Bloomberg-Nanos Canadian Confidence Index rebounded to 48.6 as of May 9, approaching the neutral 50-point threshold. Data scientist Nik Nanos attributes the boost to the election of Prime Minister Mark some economists warn the rebound may not last. Walid Hejazi, professor at the University of Toronto, notes that fear alone can drive downturns. 'If consumers fear a recession is coming,' he says, 'they may reduce their spending, and reduced consumer spending makes the economy slow down even more.'Beyond the traditional data, economists are watching more unusual trends:The road ahead is anything but clear. Isabelle Salle, a behavioral macroeconomics professor at the University of Ottawa , says we're navigating uncharted waters.'Tariffs and this uncertainty shock just added to existing problems, at the worst time possible,' she explains. 'With uncertainty, you cannot easily assign probabilities to the different scenarios. You really have to operate with just options.'
Mint
12-05-2025
- Business
- Mint
Muted loan growth at SBI and Kotak Bank reflects caution. Will FY26 see a credit revival?
India's largest bank State Bank of India (SBI) reported slower-than-expected loan growth for FY25. SBI's advances grew 12% from last year, missing its guidance of 14%. Adding to the woes, SBI's management has flagged that elevated tariffs could temper loan growth. Kotak Mahindra Bank, another large private sector bank clocked 14% rise in advances in FY25, against 18% growth seen in FY24, reflecting a cautious approach. Kotak did not provide any forward guidance for FY25. The slowdown in credit growth isn't surprising, but it's becoming more visible. Banks are lending, just a bit more carefully. With FY25 behind us, the tone for FY26 looks measured, not aggressive. So, what's behind the credit slowdown, and how is FY26 shaping up? Let's take a closer look. The credit slowdown is not limited to just two banks–it reflects an industry-wide trend. According to the Reserve Bank of India, the banking sector's credit growth almost halved to 11% in FY25, from a high 20% growth reported last year. Factors contributing to this trend First, the higher base effect played a role—FY24 saw sharp 20% credit growth, driven primarily by unsecured lending, including personal loans. Second, the sector's credit-to-deposit ratio surged past 75% (the optimal level), as credit growth outpaced deposit mobilisation. This imbalance prompted caution among banks, leading them to focus more on deposit growth while deliberately slowing down lending activities. Third, NBFCs, which had borrowed aggressively in recent years, saw their bank borrowings rise to 22.6% in FY24, up from 21.7% in FY23 and 19.8% in FY21. Adding to the concern, stress was building on their books due to rising non-performing assets, prompting the RBI to raise the risk weights on bank lending to NBFCs by 25 percentage points in November 2023. This move effectively increased the cost of lending for banks. These factors together contributed to a broader deceleration in credit growth across the banking system. However, as the increased risk weights had slowed down lending activity, the RBI rolled them back in February 2025. This decision came after NBFC borrowings from banks fell to just 17% in Q2FY25, as highlighted in the December 2024 Financial Stability Report. Meanwhile, HDFC Bank's total advances increased by about 5.4% in FY25. Axis Bank reported 8% growth, while ICICI Bank stood out with 13.3% growth in total advances, matching system-wide growth and outpacing peers. Also Read: Canara Bank CEO expects corporate loan growth to pick up in second half of FY26 SBI missed credit guidance SBI total bank advances increased by 12% in FY25 to ₹42 trillion, lower than 15% growth in FY24. With this, the bank also missed its revised guidance of 14%, which was revised downward from a 14-16% range guided in Q2FY25. In FY24, the bank clocked 16.3% growth in domestic and 9.5% growth in international advances. Domestic growth was broad-based, aided by a heated economy. However, liquidity remained tight for the sector as the economy lost momentum in FY25, driven by subdued government spending and deliberate credit tightening. SBI's total advances rose just 12% (in FY25), lower than the 15% in the previous year. While international lending picked up, growing 14.8%, domestic credit growth slowed to 11.6%. Unlike last year, the slowdown was more visible across retail, agri, SME, and especially corporate lending. Retail personal lending grew by just 11.4%, agri by 14.3%, and SME by 16.9%—each moderating from FY24 levels. The corporate loan book, however, was the biggest drag, growing just 9%, down from 16.2% in FY24. According to the management, an unexpected slowdown in the corporate segment and unusually high prepayments from the public sector undertaking led to slower credit growth. Large companies used equity proceeds to repay debt and deleverage. The bank cited NTPC's ₹10,000 public issue as an example. Also Read: Treasury gains save SBI's day, but couldn't avert earnings downgrades SBI's credit growth ahead Looking ahead, the bank expects a recovery in corporate credit demand, supported by a robust pipeline of ₹3.4 trillion, of which 50% is already sanctioned. This is expected to be driven by rising demand from the lower-income salaried segment. Additionally, SBI added 6.5 lakh new corporate salary accounts, which is expected to aid growth further. The bank expects demand revival in infrastructure, renewable, data centres, and commercial real estate to support credit growth. The bank expects credit growth of 12-13% in FY26, similar to FY25 and in line with system expectations. Motilal Oswal expects industry credit growth to remain modest at 12% in FY26. On the financial front, the bank's net interest income (NII) increased by a muted 4.4% to ₹1.67 trillion, while the NII margin contracted by 19 basis points to 3.09%. To this end, there remains a risk of further margin contraction if the RBI cuts rates. However, SBI sees limited pressure due to a higher share of MCLR-linked loans. Net profit increased strongly by 16% to ₹70,901 crores, driven by a 4 percentage point improvement in the cost-to-income ratio to 51.6%. Asset quality also remained strong. Credit growth for Kotak Much like SBI, Kotak also saw muted loan growth across segments. Net advances in FY25 rose by just 14%, lower than 18% in FY24, and below analyst expectations. This was despite acquiring Standard Chartered's personal loan portfolio of ₹3,330 crore in January 2025. The bank did not provide any forward guidance for FY25, possibly due to the RBI's restrictions on onboarding new customers in April 2024. Even so, Kotak recorded the highest loan growth among the top five banks, outperforming both ICICI and SBI. That said, the moderation in growth was visible across most key segments. Consumer loan growth slowed to 17%, down from 20% in FY24. A sharp decline in unsecured lending–credit card loans fell by 7%, after rising 44% last year–weighed on retail lending. Notably, the RBI's 10-month ban on new credit card issuance, which was lifted in February 2025, dragged the performance. Commercial loans grew just 6%, compared to 20% in FY24. Kotak also scaled back its exposure to retail micro-credit–a segment seeing rising stress, leading to a 33% decline, versus 60% growth last fiscal. Like SBI, Kotak corporate credit growth fell to 6%, compared to 21%. However, SME lending surprised on the upside, growing 31%, against 18% in FY24. Looking ahead, Kotak expects loan growth to rebound, supported by a recovery in unsecured lending and credit card issuance. Despite modest growth in FY25, Kotak remains optimistic about accelerating loan growth to 1.5- 2x nominal GDP. This is expected to be driven by a rebound in consumer lending and unsecured credit. With the ban lifted, the bank expects credit card issuance to recover, aided by new product launches. Kotak aims to push unsecured loan growth into the mid-teens and will sharpen its focus on retail and SME lending. On the financial front, Kotak's net interest income increased 9% from last year to ₹28,342 crore in FY25, while net interest margin fell 36 basis points to 4.96%. Its cost-to-income ratio declined by 2.63 percentage points to 43.4%. However, despite that, net profit remained flat at ₹13,720 crores, due to sharp 87% jump in provisions. Also Read: Are banks hiding weak asset quality with higher loan write-offs? SBI trades at discount to peers, Kotak in line From a valuation perspective, SBI trades at a price-to-book (PB) multiple of 1.4, a slight premium to its 10-year median of 1.2. Kotak, on the other hand, trades at 2.6x PB, about a 40% discount to its 10-year median of 4.2x. SBI trades at a deep discount to HDFC Bank (2.9), ICICI Bank (3.3), Axis Bank (1.9), and even Kotak Mahindra Bank. Kotak's discount to ICICI Bank is justified, given ICICI's outperformance—not just over Kotak, but across the broader banking sector. Though the current elevated credit cycle has peaked, with rising credit costs and non-performing assets across the sector, stress in the loan books of larger banks like SBI and Kotak has remained relatively muted. The higher cost-to-deposit ratio, which had been a drag on loan growth, also shows the first signs of reversal. With tax cuts, credit demand is expected to pick up in FY26, though at a more gradual pace, and it may take time to return to the peak levels seen in FY24. However, rising geopolitical tensions and economic slowdown could be a drag. For more such analyses, read Profit Pulse. About the author: Madhvendra has over seven years of experience in equity markets and has cleared the NISM-Series-XV: Research Analyst Certification Examination. He specialises in writing detailed research articles on listed Indian companies, sectoral trends, and macroeconomic developments. Disclosure: The writer does not hold the stocks discussed in this article. The views expressed are for informational purposes only and should not be considered investment advice. Readers are encouraged to conduct their own research and consult a financial professional before making any investment decisions.
