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14% Surge In Financial Savings: RBI Dy Guv Patra

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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.

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Household Savings Reflect Changing Consumer Preferences, Not Economic Distress: FM

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The Finance Ministry has contended in its latest report that households are now accumulating fewer financial assets than in the past due to their increased use of loans to purchase real assets like homes and cars, which is “not a sign of distress but of confidence in their future employment and income prospects.”

Data from the Reserve Bank of India released this week showed that net household financial savings decreased from 7.2 per cent of the GDP in 2021–2022 to 5.1 per cent of the GDP in 2022–2023—the lowest level in 47 years, or since 1976–1977. In addition, household financial liabilities increased from 3.8 per cent of GDP in 2021–22 to 5.8 per cent last year, raising concerns that many households’ recovery from the COVID–19 epidemic is still insufficient and that high inflation has eroded savings.   

The ministry claimed that although fresh inflows have decreased, overall net financial assets are still increasing. “Between June 2020 and March 2023, the Stock of Household Gross Financial Assets went up by 37.6 per cent and the stock of household gross financial liabilities went up by 42.6 per cent — there was no big difference between the two,” the Ministry said. 

Since September 2022, vehicle loans have increased by more than 20 per cent, with double-digit growth since April 2022. Clearly, the household sector is not in difficulty. They are financing their purchases of cars and homes, the Ministry claimed.

This, it stated, demonstrated that as of 2021–2022, the proportion of household savings to nominal GDP had stayed consistent, dropping from about 20 per cent to 19 per cent.