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Trends and Patterns of Household Indebtedness

J Dennis Rajakumar (, S L Shetty ( and Vishakha M Karmarkar ( are with the EPW Research Foundation. Gyanendra Mani ( is with the National Bank for Agriculture and Rural Development.

Based on the data from the All-India Debt and Investment Surveys, a re-emergence of non-institutional credit agencies in the incidence of household indebtedness is found since the 1990s, especially in the rural areas, reflecting the inadequate social commitments of the institutional agencies due to their contemporary organisational deficiencies. The data, however, do not seem to capture the extent of urban distress in totality. Yet, given the general dearth of evidence on the status of household indebtedness over time, institutions like the Reserve Bank of India and the National Bank for Agriculture and Rural Development should revisit this information to resurrect their roles in strengthening credit delivery to the general population.

The authors acknowledge the funding from the Research and Development Fund of the NABARD for the collaborative research project titled “Household Indebtedness and Asset Holdings as per AIDIS: A Critical Exposition and Review.” This paper is extracted from the project report.

Studies on indebtedness and wealth of households, both in rural and urban areas of the country, have principally used the results of All-India Debt and Investment Surveys (AIDIS).1 The various correlates by which the AIDIS’ results have been reported provide ample opportunity to the research community and policymakers to dissect incidence of indebtedness (IOI) in their varied dimensions (Rajakumar et al 2018). In this paper, the authors present the trends and patterns of indebtedness of the Indian rural and urban households, based on the analysis of these longitudinal data. Data for the overall rural sector are available from 1951 onwards, and since 1961 these are disaggregated into cultivator and non-cultivator households. For the urban sector, data disaggregated by self-employed and other households, are available from 1981.

This paper is broadly divided into three parts. The first part discusses the trends of household indebtedness; the second part provides a comparative analysis of the demand-side results with their corresponding supply-side statistics; and the third part makes a few concluding observations.

Trends in Household Indebtedness

Here the authors refer to the size of cash loans reported by households as on 30 June 1952 of the reference year.2 They have reviewed both the IOI, that is, percentage of households reporting cash loans, and the average amount of debt per household. Further, they have analysed the IOI by the source of credit, and the purposes of borrowing and also the rate of interest charged by various credit agencies.

Incidence of indebtedness: In the AIDIS data sets, the series on IoI is consistently available only for rural households and amongst them, for the cultivator segment. At the aggregate level for rural households, the IOI is also reported by both institutional and non-institutional credit agencies. However, prior to 1991 such information is not disaggregated by the cultivator and non-cultivator households (Table 1, p 42).

The trends in IOI of the rural households bring out some interesting results and also raise various intriguing questions. Historically, the rural households were predominately indebted to the non-institutional agencies. An avowed objective of public policies has been to reduce such non-institutional indebtedness of the rural households. The AIDIS results show that these policies have been a notable success. The rural IOI on the whole has experienced a steep decline from about 63% in 1951 to a little over 31% in 2012, largely due to the rapid decline in the number of households indebted to non-institutional credit agencies. However, the movement of the IOI over these seven decades can be split into two distinct phases: a declining phase till 1981, when the IOI declined steadily from 63% in 1951 to 19% in 1981, and a rising phase thereafter when the IOI rose gently to reach 31% in 2012. This trend is observed to be similar for both cultivator and non-cultivator households. The declining IOI till 1981 can be attributed to the bank nationalisation in 1969 marking the concerted attempts by the government to provide institutional credit facilities to the vulnerable sections of the rural community. This potentially weaned them away from moneylenders and other non-institutional agencies, as already mentioned above. The AIDIS results show that even for the non-cultivator households, the decline in IOI was very steep from 75% in 1961 to almost 10% in 1991. But, there was a setback and subsequent reversal of this trend after the economic and financial sector reforms of 1991, with the incidence rising to 19% in 2012.

Comparable trends are observed for the IOI of rural households borrowing from institutional sources. It fell from 16% in 1961 to 12% in 1971 and further to 11% in 1981, but again rose to 16% in 1991 and further to 17% in 2012. The phase between 1991 and 2012 saw major holdups in banks’ credit delivery to the vulnerable sections (EPWRF 2014). These results are in contrary to one of the major policy objectives of the bank nationalisation in 1969, which was to expand the credit flows in the rural sector (Table 1).

As far as the rural IOI for non-institutional borrowing is concerned, the rise from the trough of 10% in 1991 to 16% in 2002 and further to 19% in 2012 is probably explained by the inability of the organised banking sector to meet the rising credit needs of the rural community. The IOI due to institutional borrowings, however, fluctuated during the period, but at higher levels than in the preceding period. In the pre-reform period, the IOI from institutional borrowings had risen to 16% in 1991 from 11% in 1981. This happened because in the second half of the 1980s, subject to considerable sociopolitical pressures to arrest growing poverty and inequality, the banking sector was under the mandatory requirement of increasing the proportion of priority sector advances from 33% to 40% of the outstanding bank credit in 1980. But, immediately after the reforms, pressures were building up on the banking system to clean their books and hence, the institutional IOI slipped back to 13% in 2002. Subsequently, the sociopolitical focus shifted to the growing financial exclusion of the farm community and hence a policy of doubling of credit flow to agriculture was initiated in June 2005, which resulted in a jump in the institutional rural IOI from 13% in 2005 to 17% by 2012.

For the urban households the AIDIS data on the IOI is available from 1981 to 1982 onwards. While IOI of all urban households shows a marginal rise from 17% in 1981 to 19% in 1991, it dipped to 18% in 2002 only to rise to 22% in 2012. Within the urban sector, the phenomenon of self-employed households becoming relatively more indebted than other households has emerged lately. Both the self-employed and the other urban households generally rely more on institutional agencies and, thus, the reliance of urban households, in general, on this source of credit is found to be high.

A comparison between the IOI of the rural and the urban households reveals certain noteworthy tendencies. The level of rise of the IOI of the rural households is estimated to be higher than their urban counterparts during the last two decades starting from 1991. Such a rise in the IOI of rural households can be attributed to the resumption of their increasing indebtedness to non-institutional agencies, in general, and especially of the cultivator households as compared to the other household categories. In contrast, the marginal rise in the IOI of the urban households, in general, is due to their increased indebtedness to the institutional agencies. It, thus, appears that institutional borrowing is increasingly substituted by non-institutional agencies insofar as the rural credit is concerned; the rate of increase in the proportion of rural population relying on non-institutional sources is alarming, reminiscent of the early post-independence era.

Aggregate debt: Attempts have been made to build estimates of aggregate debt of households since All-India Rural Debt and Investment Survey (AIRDIS) 1961–62, although these are available only for the rural households for the first two decades ending 1971. The authors have worked out the compound annual growth rate (CAGR) of outstanding debt for different household categories depending upon the available data and compared them with the CAGR of the aggregate national income and the agriculture income, all in nominal terms (Table 2).

Further, interesting results are discernible from Table 2. First, rural indebtedness dominated the scenario of household indebtedness in India until the end of the last century, with the share of rural debt ranging between 67% and 63% of the aggregate household debt between 1981 and 2002, as compared to 33% and 37% comprised by the urban debt during this period. But, by 2012, the share of rural debt dropped to 42% with a corresponding rise in the share of urban debt to 58%—a gap of as much as 16 percentage points. This trend is in line with the declining trend noticed in the ratio of rural households to total households, which suggests growing urbanisation in the country. Second, within the rural sector, the indebtedness of cultivator households has largely dominated, though in recent decades non-cultivator household indebtedness has escalated from 20% in 1991 to 26% in 2012. And, the share of cultivator households’ debt in the total rural debt is higher than their share in the total number of rural households, implying that a smaller number of indebted households carry a disproportionately larger burden of debt, though, this gap has narrowed down over time. Third, in the expansion of urban debt in the decade ending 2012, it is the share of urban households other than those characterised as self-employed that has made the largest contribution (62%), while the contribution of the debt of self-employed has remained broadly unchanged at 37% to 38%. This is largely explained by the housing loans. The percentage share of self-employed in total number of urban households remained disproportionately low (ranging from 31% to 36%) compared to their share in total debt (37% to 47%) throughout. In 2012, there was a steep jump in the number of self-employed households. The broad implication of this is that in 2012, the proportion of self-employed in urban areas has shot up potentially due to the absence of direct employment opportunities.

GDP versus debt growth: What stands out in the results of this analysis is that the growth in household debt has distinctly outpaced the growth in relevant economic indicators such as the gross domestic product (GDP) and agriculture production. In particular, the CAGR of the total household debt has been at 21% between 2002 and 2012, when the national economy reported an annual growth of almost 15%; or CAGR of rural debt has been 16% when the agriculture sector registered a growth rate of nearly 13%.

While the growth of rural household debt (at 16.4%), particularly that of cultivator households (at 16.2%), has been quite significant, the debt accumulation by urban households has been unprecedented (at 26.9%), which has in fact been responsible for the observed higher growth of overall household debt at the all-India level (at 21.3%). Thus, the higher order of growth in key economic indicators has been accompanied by an unprecedented growth in household debt, which signifies greater commercialisation of the economic system.

Debt per household: The average amount of debt (AOD) per household has been presented in all AIDIS reports throughout for the rural sector and from 1981 onwards for the urban sector (Table 3). As expected, the AOD of cultivator households has remained higher than that of non-cultivator households throughout the period. However, the ratio of AODs for cultivator to non-cultivator households, which rose between 1951 and 1981, has consistently slipped thereafter, touching the lowest level of 1.72 in 2012 as against 3.92 in 1981. This implies that in the past three decades, the increases in the AOD of non-cultivator households have overtaken those of cultivator households, as shown below.

In the urban sector, the AOD of self-employed households has remained higher than that of other households. The actual ratio of AOD of self-employed households to that of others fell from 1.81 in 1981 to 1.05 in 2002 but rose to 1.34 in 2012. This observed trend is in line with our earlier observation that debt of self-employed households has increased steeply in 2012.

The actual ratio of AOD of rural to urban households showed a fall from 0.64 in 1981 to 0.53 in 1991; and further to 0.38 in 2012. This implies that not only the share of urban households in total debt evidenced a sharp rise in 2012, but the AOD per urban household had also increased between 1991 and 2012 compared to their rural counterparts.

The estimates of the CAGR of AOD for all categories of households confirm the aforesaid results. First, the debt of all categories of households has grown sharply since 1991, which outperform the rate at which the overall economy has grown, particularly between 2002 and 2012. Second, in the rural segment, non-cultivator households have tended to accumulate more debt compared to the cultivator counterparts since the early 1990s. Third, in the urban areas, the self-employed households have tended to accumulate more debt than other households in 2002–12.

Household Debt by Type of Credit Agencies

One of the major findings of the All India Rural Credit Survey (AIRCS), 1951–52 was that the rural credit market was dominated by various non-institutional agencies such as moneylenders, traders, input suppliers and so on. These findings had generated considerable social as well as public policy pressures to wean the rural households away from the non-institutional agencies, especially the moneylenders. The various financial system/sector policy initiatives undertaken since should have ideally increased the role of institutional agencies in providing financial support to the households. In this respect, commercial banks have played a major role, but subsequently after the economic and financial sector reforms of the 1990s, these banks have faced internal challenges in dovetailing the demands of house-keeping with those of social banking; hence they faltered on credit delivery to the rural sector and other weaker sections. The rural households appear to have been pushed to the private credit market for their borrowing needs. Thus, the proportions of rural households borrowing from non-institutional agencies have shot up from 10% in 1991 to 16% in 2002 and further to 19% in 2012 (Table 1).

Data on the distribution of outstanding debt holdings by credit agencies, since 1951 till the 1990s, reveal the emergence of the institutional credit agencies as dominant holders of household debt, by replacing the traditional non-institutional sources agencies (Table 4, p 45).

The bulk of the household debt (roughly about three-fourth in 2012) from institutional sources has come from cooperative societies and commercial banks. The relative share of cooperative societies in the total rural household debt rose significantly from 3% in 1951 to 28% in 1981, but slipped somewhat thereafter and fluctuated in all the subsequent survey periods. The role of commercial banks appears commendable with their share in total rural credit rising from a meagre 0.3% in 1961, that is, before bank nationalisation, to 2% in 1971, and with the subsequent formulation of policies for priority sectors further rose to 34% in 1991, and also remained the single most important source of credit until. In the following decades, the relative importance of commercial banks has gone down with their share falling to 25% in 2012. Thus, the observed reduction in the overall share of institutional credit agencies in total rural debt from 64% in 1991 to 56% in 2012 can be largely attributed to the dwindling role of the commercial banks.

Amongst the non-institutional credit agencies serving the rural households, professional moneylenders used to be a major source prior to the independence and until the 1950s (RBI 1955), while their share in the total rural lending fell from 46% in 1951 to 8% in 1981, but again gradually rose to 28% in 2012. On the other hand, the share of the agricultural moneylenders fell over the years from a whopping 47% in 1961 to 5% in 2002. It is disconcerting to record that “professional moneylenders” have re-emerged as the single most important source of rural finance by 2012, even outperforming the relative share of the commercial banks in rural debt.

In the case of the urban sector, however, a different pattern is discernible. The relative share of institutional agencies in total urban debt has gone up from 60% in 1981 to 84% in 2012, largely because of the increasing share of the commercial banks. While the reduction in the share of non-institutional credit agencies is across the board, the relative importance of professional moneylenders continues to remain high even for the urban household debt.

Re-emergence of professional moneylenders: Though the co-operative banks/societies and the commercial banks have emerged as important sources of institutional credit for both the rural and urban households, yet in the recent decades they have faced competition from the professional moneylenders, who have re-emerged as relatively more important than the commercial banks for rural households by 2012. Notwithstanding the relatively important role of the institutional credit agencies among the cultivator households vis-à-vis the non-cultivator households, the professional moneylenders have assumed increased importance in the overall rural household lending, resulting in an increased importance of the non-institutional credit agencies in general. This is especially true for the non-cultivator households who have reported of obtaining around 34% of their total loans from professional moneylenders. In the urban sector, the self-employed have relatively less reliance on institutional debt compared to the other urban households. While commercial banks account for the bulk of urban household debt from the institutional sources, amongst the non-institutional categories the professional moneylenders dominate.

Distribution of Loans by Purpose

An analysis of the purposes of household lending shows that, by and large, consumption expenditure dominated households’ borrowing needs (Table 5). There is no consistent trend in the lending purposes of rural households. In some benchmark survey years, an overwhelming proportion of the outstanding debt of the rural households has been for productive purposes such as for meeting farm and non-farm business expenditures, while in some other survey years, the same proportion has been for meeting their consumption needs, as brought out in Table 5. Within productive purposes, the share of expenditure on farm business has dominated but fluctuated wildly. Under farm business, capital expenditure accounts for the bulk in all the survey years. Capital expenditure has, thus, been the major underlying motivation for rural households to incur debt for both farm and non-farm businesses. The break-up of “Expenditure in Household” shows that repayment of debt as a purpose is rising in the recent survey years. As per the latest survey of 2012, “other household expenditure” and housing are the dominant purposes followed by medical and education expenditures.

In the case of urban households, a gradual reduction in the share of loans for capital expenditure is noticed. The latest data from 2012 shows that housing expenditure has emerged as the dominant purpose for urban household borrowing, followed by education and medical expenditures. As far as the credit for business expenditure is concerned, rural households, as expected, incur debt largely for meeting the capital expenditure in farm business, whereas for the urban households debt for incurring expenditure on non-farm business predominate.

The urban households have a sizeable and growing share of “expenditure in households,” gradually rising from 58% in 1981 to 82% in 2012, which includes pure consumption expenditures and expenditure for housing as well as health and education. However, rural households incur relatively more debt for medical treatment in comparison with education, in contrast to the urban households who incur more for education and somewhat less for medical treatment.

Distribution of Debt by Rate of Interest

There is no uniformity followed across different surveys regarding the distribution of outstanding household debt by various intervals of interest rate. This has impaired the construction of time series in this respect. The authors have, therefore, constructed weighted average rate of interest (WARI) for all the years (Table 6). A comparison of the WARI over the years shows that average interest rate has persistently risen for both rural and urban households since 1991 compared to previous periods. In fact, there has been a meagre reduction in the overall interest rate during the latest decade.

Interest rate and credit agencies: However, the above proposition does not appear to be valid, if they work out WARI separately for institutional and non-institutional agencies, as in Table 7 (p 47). The institutional agencies have shown a sizeable reduction in the rural WARI between 2002 (14.3%) and 2012 (11.8%). Such a reduction has occurred rather sharply only
in the interest range of 15% to 20%. The subsequent interest rate intervals have shown moderate increases or meagre declines.

The two-way classification of debt, that is, by interest rate and by credit agencies throws up some illuminating results, though only for one year, that is, as on 30 June 2012 (Table 8, p 47). First, for the rural households, only 47% of the total debt fell within the interest rate interval of 12%,3 while, another 43% of the loans was concentrated in the next interest rate range of 12% to 15%. Second, amongst the institutional sources of credit, the non-banking financial institutions were charging relatively higher rates of interest (with their WARI ranging from 12.9% to 17.6%) than the banking institutions (with an estimated WARI of around 11.3%). Third, in contrary to the general perception that the self-help group (SHG) bank-linked institutions charged much higher WARI than the banking institutions, both in rural and urban areas. Lastly, in tandem with the historical tendency, non-institutional loans exhibited concentration in the high interest rate brackets in contrast to the institutional loans concentration in the lower interest rate brackets.

The Supply Side of Institutional Lending In its annual publication on the Basic Statistical Returns (BSR) of Scheduled Commercial Banks, the Reserve Bank of India (RBI) provides information on outstanding bank credit by type of organisations even within the household sector. Initially the household sector consisted of the organisations such as partnership and proprietary concerns, joint families, associations, clubs, societies, trust and groups, besides individuals. Later on, the SHGs/joint liability groups and non-governmental organisations were included in the household sector.

However, the definition of a household followed in the AIDIS draws from the concept of common kitchen, that is, a household constitutes “a group of persons normally living together and taking food from a common kitchen” and so this cannot be related to any form of business organisation. Hence, as noted by Subba Rao (2007: 76), quasi-corporations of business households such as proprietary and partnership concerns engaged in different activities do not get covered by the AIDIS. The authors have, therefore, considered outstanding credit from the commercial banks to individual households as representing the supply-side of credit for comparison with the demand-side as represented by the AIDIS statistics.

The extant literature on the supply-side of institutional credit is dominated by studies using BSR data (Rajakumar et al 2018). When these estimates are compared to the demand-side estimates from the AIDIS, underestimation is observed largely due to the difference of coverage in these two sets of data. Gothoskar (1988) used outstanding credit of the entire rural sector, inclusive of non-households entities, and so the degree of underestimation by him is likely to be larger. Rao and Tripathi (2001) in their estimation of the commercial banks’ credit to household sector included credit to individuals for different occupational activities, personal loans, professional services and all small borrowal accounts, but excluded credit to partnerships, proprietary concerns, associations, clubs, societies and groups, which are not covered by the AIDIS either. Chavan (2012) used credit outstanding from the rural branches of commercial banks and the regional rural banks (in the case of individuals, joint families, SHG, and proprietorship and partnership firms). Here again, a few categories of households are considered that are not covered by the AIDIS, resulting in underestimation of household debt. For this exercise, the authors have considered individuals, including small borrowal accounts,4 making their estimates largely consistent with that of Rao and Tripathi (2001). In their supply-side estimates of household credit, the authors have also covered outstanding loans and advance of cooperative societies, in addition to the commercial banks (Table 9).

Further, the results show that the loan outstanding figures as per the books of the cooperative societies (supply-side) have exceeded the estimated household debt from cooperative societies (demand-side) by a sizeable margin. The share of household debts in the total loans and advances of cooperative societies, as per the AIDIS data has been 30% for three decades ending in 2002 but rose considerably to 69.1% in 2012. On the other hand, the share of outstanding commercial bank credit to individuals in the total household loans of commercial banks fluctuated from 39.8% in 1981 to 25.6% in 2002, but was subsequently at 32.7% in 2012. The supply-side of commercial bank credit thus remains about three times higher than the demand-side estimates. However, when the demand side estimates are compared with the supplied estimates combining both the cooperative societies and the commercial bank, the demand-size underestimation is observed to persist at a range of 63% to 73% over the various decades. Given this, it can be argued that the overall household indebtedness may have been grossly underestimated in the nationwide surveys. However, it cannot be dismissed that there can be substantial margins of errors on both the estimates.


A noteworthy revelation coming out from the AIDIS data is the re-emergence of non-institutional credit agencies, the professional moneylenders in particular, for cash loans to households. The declining share of non-institutional agencies in the incidence of rural indebtedness got reversed after 1991 following financial sector reforms largely, because the institutional agencies began facing organisational deficiencies reflected in their inadequate social commitments. Consequently, they not only faltered on their developmental goals, but also faced weak balance sheets. All of these were reflected in the banks’ reduced exposure, particularly to the rural borrowers, with both the cultivator and non-cultivator households being pushed to non-institutional sources. The share of non-institutional agencies in the total outstanding debt of cultivator households rose from 34% in 1991 to 42% in 2012, while for non-cultivator households from 45% to 51% during the same period. Again, in this category, the share of loan from professional moneylenders in cultivator households’ debt more than doubled from 11% to 26%, and for non-cultivators more than trebled from 10% to 34% from 1991 to 2012.

The ongoing agrarian crisis in the country has already manifested itself in the widespread incidence of farmers’ suicides attributable to excessive indebtedness. In depicting the depressing scenario of rural indebtedness, the All-India Rural Credit Survey (AIRCS) report of 1951–52 had aptly used an old French proverb: “Credit supports the farmer as the hangman’s rope supports the hanged,” which stands relevant even today. In fact, the AIRCS report’s descriptions of the rural crisis are as true even after 70 years of independence as it was then:

The result is that the local landlord who may also be moneylender, the local moneylender who may also be trader, and the educated person who may also be subordinate official, all these through their association with the outside urban world of finance and power wield an influence in the village which at many points is diverted from the good of the village to the benefit of the caste or even of a close circle of relatives. (RBI 1955: 14)

Institutions like the RBI and the National Bank for Agriculture and Rural Development (NABARD) should revisit these reports to resurrect the roles of these institutions in strengthening the credit delivery to the rural population and also, the urban self-employed.

However, the AIDIS reports do not seem to capture the extent of urban distress in totality, particularly of the self-employed. The share of institutional agencies in the total urban household credit has consistently improved in the recent decades, from 70% in 1991 to 84% in 2012, while that of the non-institutional agencies fell from 30% to 15%. But anecdotal evidences intuitively imply that such puny share of non-institutional agencies in urban indebtedness is perhaps an underestimation, especially, with over 90% of the urban self-employed comprising of own-account microenterprises. Their dependence on professional moneylenders is probably much larger than the AIDIS estimates.


1 AIDIS is one of the most exhaustive surveys in the Indian statistical system. It was originally conceived and implemented to aid rural credit planning by the Reserve Bank of India (RBI) which, as the central bank of the country, had the mandate to develop the rural credit delivery structure and to expand the supply of credit to agriculture and other rural activities for their development (RBI 1957). The first survey in 1951–52 covered the rural sector and mostly detailed information on rural households’ indebtedness; thus, appropriately called the All-India Rural Credit Survey (AIRCS). In line with one of the major recommendations of the committee of direction which was enjoined with the responsibility of organising the AIRCS, the RBI conducted the next rural survey in 1961–62, extending the surveys to include asset holdings of rural households; and it was known as the All-India Rural Debt and Investment Survey (AIRDIS). A similar survey was repeated in 1971–72 with the coverage expanded to include the urban sector as well; and so, the survey was renamed as All-India Debt and Investment Survey (AIDIS). Though the results were published only for the rural sector. The National Sample Survey Office (NSSO) was thus given the task of conducting the survey and it carried out the AIDIS as part of the subject programme of its 26th round. The tradition of conducting AIDIS as a decadal programme was thus continued in 1981–82, under the NSSO 37th round; this round covered both rural and urban sectors and the results were published as such. The collaborative arrangement between the RBI and the NSSO for implementing the AIDIS ended with the 1981–82 survey. The next decadal survey was conducted in 1991–92 as part of the NSSO 48th round programme. This was followed by the AIDIS survey in 2002–03 as part of NSSO’s 59th round, after a gap of 11 years. While the latest one was conducted in 2012–13 under NSSO’s 70th round survey programme. For an overview of these surveys and a review of studies using these surveys, see Rajakumar et al (2018).

2 Except for 1951, which were derived by the Committee of Direction of AIRCS based on debt-related data such as outstanding debt as on 30 June 1952 and borrowing and repayments during 1951–52.

3 The authors perceive that 12% is a good yardstick as representing a reasonable rate of interest for rural loans in 2012 because the weighted average rate for agricultural loans was 1.98% as per the RBI’s Basic Statistical Returns for Scheduled Commercial Banks for the same year.

4 In the BSR data set, small borrowal accounts are those with a credit amount outstanding of less than ₹ 2 lakh. This criterion has been in force since March 1999. Prior to this, the limit was ₹ 25,000 between December 1983 and June 1998, and ₹ 10,000 between December 1972 and June 1983.

The major chunk of small borrowal is accounted by individuals (over 95% except in 2011–13), both in terms of number of accounts and outstanding credit. The size of small borrowal accounts as percentage to total bank credit has shrank from 23.1% as at end-March 1999 to 8.3% as at end-March 2016. Small borrowal accounts used to constitute nearly three-fourths of the total credit to individuals in 1999 and this has gradually declined to 23.2% in 2016. (Source: Based on data extracted from EPWRF India Time Series. Accessed on 10 July 2017 at

As noted above, a loan account of ₹ 2 lakh and less is classified under small borrowal accounts since 1999. The criteria is not indexed to inflation and so the value of ₹ 2 lakh would have diminished over the years as a direct consequence of inflation featuring the economy. This explains why the amount of loan outstanding under this account has reduced over the years, as percentage to total bank loan.


Chavan, Pallavi (2012): “Debt of Rural Households in India: A Note on the All-India Debt and Investment Survey,” Review of Agrarian Studies 2(1), pp 151–61.

EPWRF (2014): “Agricultural Credit in India: Trends, Regional Spreads and Database Issues,” published as Occasional Paper 59, National Bank for Agriculture and Rural Development, Mumbai.

Gothoskar, S P (1988): “On Some Estimates of Rural Indebtedness,” Reserve Bank of India Occasional Papers, Vol 9, No 4, December, pp 299–327.

Prabhu, K Seeta, N Avadhoot and C V Achuthan (1988): “Rural Credit: Mystery of the Missing Households,” Economic & Political Weekly, Vol XXIII, No 50, 10 December, pp 2642–46.

Rajakumar, J Dennis, G Mani, S L Shetty and V M Karmarkar (2018): “Household Indebtedness and Asset Holdings as per AIDIS: A Critical Exposition and Review,” Occasional Paper # 65, National Bank for Agriculture and Development, Mumbai.

Rao, K S R and A K Tripathi (2001): “Indebtedness of Households: Changing Characteristics,” Economic & Political Weekly, Vol XXXVI, No 19, 12 May, pp 1617–26.

RBI (1955): All-India Rural Credit Survey: Report of the Committee of Direction, Volume II, The General Report: Summary, Reserve Bank of India, Mumbai.

— (1957): All-India Rural Credit Survey: Report of the Committee of Direction, Volume I, The Survey Report-Part 2 (Credit Agencies), Reserve Bank of India, Mumbai.

Subba, Rao, K G K (2007): “Value Added by Unorganised Financial Sector—An Alternate Methodology,” Journal of Income and Wealth, Vol 29, No 1, January–June, pp 73–78.

Subba, Rao, K G K, K S R Rao and A K Tripathi (1997): “Indebtedness of Households—A Profile,” Reserve Bank of India Occasional Papers, Vol 18, Nos 2 and 3, June and September, pp 525–51.

Updated On : 4th Mar, 2019


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