Gross household financial savings declined to 10.9% in 2022-2023

Gross household financial savings declined from 15.4 per cent in 2020-2021 to 11.1 per cent in 2021-2022 and further to 10.9 per cent in 2022-2023 reverting to its pre-pandemic trend an average of 11.0 per cent during 2011- 12 to 2019-20), the Reserve Bank of India said in latest Financial Stability Report.

“In absolute terms, gross household financial savings expanded by 13.9 per cent year-on-year during 2022-23,” the central bank stated in the report.  According to the report, household net financial savings (HNFS), fell sharply to 5.1 per cent of GDP in 2022-23 from 11.5 per cent in 2020-21, well below its long-run annual average of 7.0-7.5 per cent.

The fall in HNFS was driven by a rapid rise in financial liabilities from 3.8 per cent of GDP in 2021-22 to 5.8 per cent in 2022-23 even as financial assets moderated only marginally to 10.9 per cent in 2022-23 from 11.1 per cent in 2021-22.

The increase in financial liabilities was driven by a steep rise in borrowings from financial institutions, with a large part in physical asset creation (mortgages and vehicles). “Thus, the overall savings of households may still hold steady with a compositional shift in favour of physical savings. This would directly add to gross capital formation, supporting an upturn in private investment cycle and, eventually, the prospects for growth.” RBI added.

As per the report, recent data show that HNFS rose to 7.0 per cent of GDP in Q4 of 2022-23 from 4.0 per cent of GDP in the previous quarter, indicating normalisation of HNFS towards the pre-pandemic long-term trend. Similarly, household debt moderated to 37.6 per cent of GDP in March 2023 from its peak level of 39.2 per cent in March 2021. Despite the recent increase in financial liabilities, household debt in India is much lower than in other emerging market economies.