The preliminary estimate of household financial savings stood at 8.2 per cent of GDP in the third quarter of 2020-21, moderating for the second consecutive quarter after spiking in the pandemic-hit first quarter of 2020-21, data from the RBI show.
The moderation was driven by a significant weakening in the flow of household financial assets, which more than offset the moderation in the financial liabilities, according to the RBI statement on ‘Preliminary Estimates of Household Financial Savings for Q3: 2020-21 and Household Debt-GDP Ratio at end-December 2020’.
Household financial savings were 10.4 per cent of GDP in the second quarter of FY21 and 21 per cent of GDP in the first.
In the third quarter, household financial assets — comprising total deposits, life insurance funds, provident and pension funds (including PPF), currency, investments and small-savings (excluding PPF) — were at 12.7 per cent of GDP, down from 15.8 per cent in the preceding quarter. The ‘household (bank) deposits-to-GDP’ ratio declined to 3 per cent in the third quarter from 7.7 per cent in the preceding quarter.
Despite higher borrowings from banks and housing finance companies, the flow in household financial liabilities was marginally lower in the third quarter at 4.6 per cent of GDP (5.4 per cent of GDP in Q2) following a marked decline in borrowings from non-banking financial companies.
The ‘household debt-to-GDP’ ratio, which is based on select financial instruments, has been increasing steadily since end-March 2019. It rose sharply to 37.9 per cent at end-December 2020 from 37.1 per cent at end-September 2020.
Madan Sabnavis, Chief Economist at CARE Ratings, emphasised that households are moving away from deposits due to the low returns. “Small savings (claims on government), provident and pension funds have become more popular while cash has increased its share over time being a reliable form of savings. The capital market did get some traction albeit marginal, again,” he said.
“A signal here is that it is important to increase financial savings in the economy from two points of view. The first is to provide funds for investments. The other is to ensure that the rather large class of fixed income earners get an income that can be spent,” said Sabnavis.