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Business News/ News / India/  Quarterly household savings show upward trend, says RBI’s Michael Patra

Quarterly household savings show upward trend, says RBI’s Michael Patra

Net financial savings of households plummeted to a five-decade low of 5.1% in 2022-23 from 7.2% the previous year, according to RBI data released days ago

Reserve Bank of India deputy governor Michael Patra (Photo: PTI)Premium
Reserve Bank of India deputy governor Michael Patra (Photo: PTI)

Days after Reserve Bank of India (RBI) data showed that the net financial savings of households had plummeted to a five-decade low, the central bank’s deputy governor Michael Patra said on Friday the quarterly numbers showed an upward movement towards the historical trend.

“The historical average (for household savings) is about 7.5% of GDP… If you look at the absolute level of savings, it has gone up to 14% (year-on-year). Within quarterly numbers, it has increased from 4.2% in Q1 (of 2022-23) to 7% in Q4, so it is going towards the (historical) trend," Patra said at the post-monetary-policy press conference.

Net financial savings of Indian households spiked to 11.5% of GDP during the pandemic year of 2020-21 but has been falling ever since. In 2022-23 it hit a low of 5.1% of GDP, down from 7.2% the previous year, according to the RBI’s monthly bulletin released last month.

“We saw in the pandemic that because people couldn't go out due to restrictions, they built up precautionary savings," Patra said. “As these restrictions on movement were removed, people started to spend and drew down these savings. That is some of the phenomena you are seeing now."

Despite the 14% increase in financial assets that Patra referred to, net financial assets declined due to a massive 75.5% rise in financial liabilities of households. Net financial assets is the difference between financial assets and financial liabilities.

Patra said the increase in financial liabilities was due to a shift from financial savings to physical savings and the money was mainly going to the housing sector. “They are shifting from financial savings to physical savings, which goes into investment. Next year you will see an increase in physical investment," he added.

Household liabilities include loans from banks and non-banking financial companies (NBFCs), among others, while assets include bank deposits, investments in financial institutions, life insurance, provident fund, currency, and other investments.

Last week the finance ministry had also tried to dispel worries that high inflation and low wage growth were eating into household savings, saying the low figure in the RBI data signalled a shift in investment preferences towards non-financial assets such as houses.

“They (households) added financial assets by a lesser magnitude than in the previous years because they have now started taking loans to buy real assets such as homes… RBI data on personal loans provides us with evidence," the ministry said. “Personal loans given by banks have several components. Key among them are real-estate loans and vehicle loans. Both are collateralised. These two constitute 62% of the overall personal loans by the banking sector."

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Published: 06 Oct 2023, 05:01 PM IST
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