Gross financial savings of households is believed to have registered a flat growth in FY19 at about 11.2 per cent from 11 per cent in FY18, according to estimates by Motilal Oswal Financial Services.
However, currency holdings grew much slower in FY19 compared to FY18, while bank deposits grew massively and amid higher financial liabilities — from 3.9 to 4.1 per cent – household net financial savings (NFS) are likely to have remained stable at 7.1 per cent of GDP last year.
“Our estimates suggest that households’ GFS may have risen slightly from 11 per cent in FY18 to 11.2 per cent of GDP in FY19, supported by bank deposits,” said Nikhil Gupta, Chief Economist, Motilal Oswal Financial Services.
According to publicly available data, household gross financial savings (GFS) in FY18 stood at a 7-year high of 11 per cent of GDP, but net financial savings (NFS) came in at 7.1 per cent -- the second lowest in the past three decades. Household total savings, including physical savings, stood at 17.6 per cent of the GDP, again the lowest in the past two decades, while gross domestic savings (GDS) printed at 30.5 per cent of GDP -- the lowest in the last 15 years.
Due to demonetization in late FY17, currency holdings of households rose sharply in FY18 on account of re-monetization, which was reflected by the extraordinary growth in currency holdings and subdued growth in bank deposits. FY19 witnessed the return of normalcy in their levels, noted Gupta. Further, while new capital raised through the primary market almost doubled from Rs 1.2 lakh crore in FY17 to Rs 2.4 lakh crore in FY18, it increased modestly in FY19 to Rs 2.7 lakh crore. Accordingly, household savings in ‘shares & debentures’ will also rise modestly, he added.
Small savings, however, saw significant growth in FY19, with analysts noting that households’ ‘claims on government’ could have grown about 50 per cent last year, following the 30 per cent growth in FY18. On the liabilities side, banks’ non-food credit grew in excess of 13 per cent last year, in contrast to the 10 per cent growth per annum seen in the past four years, data from Motilal shows.
Banks’ non-food credit increased by Rs 11.4 lakh crore last year, 50 per cent up from Rs 7.6 lakh crore a year ago. Notably though, industrial credit growth picked up last year, with banks also buying out NBFCs loan book. The role of households, thus, may have declined in higher bank credit. Notwithstanding the lower household lending growth by non-bank financial institutions, households’ financial liabilities are likely to have increased faster in FY19, the report added.
Meanwhile, Gupta clarified that from an economic perspective, conclusions based on one part of GDS such as GFS were inappropriate. In fact, the entire argument regarding the benefits of the rising share of financial savings in the current context is highly misplaced as it is entirely driven by the decline in physical savings. Finally, the entire debate over underestimation of GFS loses its significance from the macro economy perspective, since GDS remains unaffected. Lower GDS presents a structural constraint to sustainable revival in investments and GDP growth.