Declined Savings resulted growth in assets

Data of Reserve Bank of India shows that the household net financial savings rate is at its lowest in decades, standing at 5.1 per cent of gross domestic product (GDP) in 2022-23, compared to 7.2 per cent of GDP in 2021-22.

The divergence in the data for household gross financial assets and liabilities is not a cause for concern for the Centre, as most loan have been used to purchase real assets or automobiles, according to the finance ministry.

The finance ministry pointed out that changing consumer preferences for various financial products are the real reason behind the shift in the pattern of household savings. Household savings must be looked into as a sum total of physical and financial savings. Besides typical bank deposits, households have put money into Equity, insurance and mutual funds.

The finance ministry highlighted that 36 per cent of non-banking financial companies (NBFC’s) outstanding retail loans are for vehicle purchase, indicating confidence in future employment and income prospects rather than household distress.

The finance ministry also pointed out a steady double-digit growth in housing loans since May 2021, demonstrating that financial liabilities have been incurred to acquire real assets. It is also believed that the shift to physical assets is also triggered by a recovery in the real estate sector, and an increase in the property prices.

“While they added fewer financial assets to their portfolios than in the previous year and the year before, it is important to note that their overall net financial assets continue to grow,” read the ministry’s post.

Economists noted that since interest rates for savings accounts have not been very attractive, people are investing more in equity and mutual funds. An economist said that people are now less risk-averse and more financially literate than before, driving this trend. “In FY2022, NBFCs lent only Rs. 21,400 crore to the household sector. In FY2023, they lent nearly Rs. 2.4 trillion. That is a whopping 11.2 times.

That has set off alarm bells as commentators forgot that these are ‘flow’ numbers,” the finance ministry clarified. However RBI also cautioned banks against lending without collateral.