Households transition from financial to physical savings, notes RBI Deputy Governor Patra
Reserve Bank of India(RBI) Deputy Governor Michael Patra disclosed the information that financial savings have seen a 14 per cent increase in absolute terms in 2023. Patra also pointed out a noteworthy shift in households’ preference from financial savings to physical savings.
He explained, “The absolute level of savings rose by 14 per cent in 2023. There has been an increase in financial liabilities of households. If you observe where these liabilities are being directed, they are mostly towards housing. Households are shifting from financial savings to physical savings. When they make this shift, they contribute to investment; the physical part of savings goes directly into investment. So, in the next year, you will observe an uptick in investment.”
However, there has been a notable decline in net financial savings of households, hitting a 50-year low, accounting for 5.1 per cent of gross domestic product (GDP) in the financial year 2023 (FY23), down from 7.2 per cent in FY22, as per data from the Reserve Bank of India (RBI). Additionally, the annual financial liabilities of households surged to 5.8 per cent of GDP in FY23, compared to 3.8 per cent in FY22.
The net assets held by households exhibited a decrease, standing at Rs 22.8 trillion in FY21, then dropping to Rs 16.96 trillion in FY22 and further declining to Rs 13.76 trillion in FY23. Household debt has been on the rise. Reports indicate that household debt, measured by the stock of financial liabilities, remained notably high at 37.6 per cent of GDP in FY23, compared to 36.9 per cent in FY22.