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Status Of Household Savings


The most recent information from the Reserve Bank of India (RBI) concerning household financial holdings and debts has been subject to differing interpretations. Some experts argue that households are reducing their savings and taking on loans to maintain their spending due to sluggish income growth since the onset of the Covid pandemic. However, the economic department of the State Bank of India and the Finance Ministry have vehemently rejected this interpretation.



Mains Question:

Indian Finance Ministers have consistently aimed to boost the household savings rate and encourage savers to invest their excess funds in financial instruments, but with limited success. Analyse. (15 marks, 250 words).

Status of Household Savings:

  • The overall stock of financial assets held by households is still increasing, rising by 22.7% from ₹228 lakh crore in FY21 to ₹281 lakh crore in FY23.
  • Although liabilities have also grown by 32%, increasing from ₹77 lakh crore to ₹103 lakh crore, it’s important to note that households are mainly taking on debt for the purpose of purchasing vehicles and property. This indicates their confidence in their future income prospects.

Analysis of the above data:

Household investments in financial assets did decrease from ₹30.6 lakh crore in FY21 to ₹29.6 lakh crore in FY23, but it’s worth noting that the FY21 figure was artificially inflated by emergency savings pouring into banks during the Covid pandemic, including direct transfers by the government to Jan Dhan bank accounts. If we exclude that exceptional year and compare with FY20, we see a 27% increase in these financial flows.  Since FY20, households have significantly increased their borrowing, with new loans more than doubling from ₹7.74 lakh crore to ₹15.8 lakh crore.  
When we examine the breakdown of financial savings by type of instrument, we observe positive trends over the three years leading up to FY23, including a 39% growth in household pension assets, a 37% expansion in equity and mutual fund assets, and a 27% increase in insurance holdings.While the Finance Ministry points out that approximately two-thirds of bank personal loans and one-third of non-banking financial company (NBFC) loans are being used for property or vehicle purchases, there is still a substantial portion of these borrowings likely being utilized for consumption, indicating possible income constraints.  

Traditionally, Indian households have displayed a strong inclination to invest in physical assets rather than financial ones, which direct capital into productive ventures. It took nearly a decade of policy initiatives to shift domestic savers from a 75:25 ratio of physical to financial savings in FY12 to a 48:52 ratio in FY21. However, recent years seem to have witnessed a significant regression in this trend.


In general, instead of seeking positive aspects within the data, policymakers should focus their efforts on encouraging domestic savers to reorient their investments towards financial assets. It is crucial to ensure that the benefits of increasing interest rates are promptly passed on to depositors and fixed-income investors. Additionally, vigilance is necessary to monitor potential systemic risks that may arise for banks and non-banking financial companies (NBFCs) due to the ongoing surge in retail lending.

December 2023