The net financial savings of Indian households hit a five-year low of Rs 14.2 lakh crore in 2022-23 from Rs 17.1 lakh crore in 2021-22, says the latest official data. This was the third year in a row that the segment saw a decline. According to early estimates, it’s likely that 2023-24, too, followed the trend. House savings peaked in 2020-21 at Rs 23.3 lakh crore, but have been going south since. Broadly, the metric includes financial savings (currency, bank deposits, mutual funds, insurance, equities), savings in physical assets (houses, cars) and savings in the form of gold and silver. As Chief Economic Advisor V Anantha Nageswaran reasoned, a dip in financial savings does not necessarily imply a slowdown in gross savings, but reflects a shift in the savings portfolio from conventional products like deposits to physical assets like real estate.
It’s true physical assets rose in 2022-23, but the growth largely came via borrowings. As a result, household financial liabilities shot up to Rs 15.6 lakh crore—the highest since 2011-12. Liabilities include housing, auto, personal and other loans. Disbursements to households by financial companies in 2022-23 saw a massive 73 percent growth to touch `3.33 lakh crore. RBI data showed despite steep rise in liabilities, they remained at only 5.8 percent of GDP during 2022-23. But worried over the surge in personal loans, in November 2023 the RBI raised provisioning requirement for unsecured loans, including personal loans. Analysts expect the banking regulator’s tightening measures to slow personal loan outgoes in the coming years.
Household savings account for over 60 percent of total domestic savings and finance about 40 percent of domestic investment. Therefore, a steady decline stretching beyond three years should deepen the government’s worries. Post-pandemic, private consumption growth has been much slower than the GDP growth rate. Lower consumption can translate to higher savings, like it did during the pandemic year of 2021; but that is not happening. The government is taking comfort in the fact that the decline in household financial savings is not accompanied by a reduction in banking assets and credit, which could lead to adverse financial market conditions. That said, the authorities must monitor financial flows and intervene from time to time to ensure that household debt remains under control, while rising unsecured loans do not intensify into a credit market crisis.