Household sector’s net financial savings dropped to a five-year low of ₹14.16 lakh crore in 2022-23, as more Indian households increased borrowing from banks and non-banks to boost investments in physical assets. This trend was coupled with increased allocations to mutual funds, direct equities, bank deposits, and life insurance products, according to the latest MoSPI data.
On a percentage to GDP basis, this net savings (of ₹14.16 lakh crore) came in at 5.3 per cent in 2022-23, substantially lower than 7.2 per cent cent in previous fiscal. The decline was largely due to the increase in households’ financial liabilities, said economists.
This net financial savings of ₹14.16 lakh crore was 17 per cent lower than the net level of ₹17.13 lakh crore in 2021-22, it revealed. On the liabilities side, the total advances (money borrowed) from banks surged 54 per cent to ₹11.88 lakh crore in 2022-23 from ₹7.69 lakh crore in 2021-22. Even on the non-banking companies front, loans to households have surged to ₹ 3.33 lakh crore in 2022-23 from ₹1.92 lakh crore in previous year.
‘Don’t panic’
This trend of increased borrowing is not reflective of any distressed debt situation in Indian households even as their indebtedness has gone up said economists.
Madan Sabnavis, Chief Economist, Bank of Baroda said that the slower growth in net financial assets of households can be attributed to higher leverage undertaken by them. “To the extent that is taken for a home or vehicle there is a fixed asset being procured and is good for investment. But loans for consumption has to be monitored.
Though it pushes the consumption spread it can increase indebtedness of households”.
Even as the fall in net financial savings showed a picture of some concern, there is good news on the gross financial savings front, which surged to ₹29.73 lakh crore in 2022-23 from ₹26.11 lakh crore in previous year.
Parked funds
The amount of gross savings into mutual funds surged to ₹1.79 lakh crore in 2022-23 from a level of ₹61,688 crore in 2019-20; 64,084 in 2020-21 and ₹ 1,60,600 crore in 2021-22, MoSPI data showed.
Similarly, household gross savings in shares and debentures has surged from ₹94,742 crore in 2019-20 to ₹1,07,184 crore in 2020-21; ₹2,14,191 crore in 2021-22 and ₹2,06,241 crore in 2022-23, it revealed.
Economy watchers said this trend is clear pointer to increased financialisation of savings in the Indian economy, which has also been corroborated by the sharp jump in the number of demat accounts.
Within financial assets, there has also been sharp increase in the funds parked in bank deposits, insurance funds as well as life insurance funds.
In 2022-23, as much as ₹540,561 crore went into life insurance funds from level of ₹4,75,850 crore in previous year. Similarly, the gross savings in insurance funds stood at ₹5,47,333 crore as against ₹ 4,86,889 crore in previous year.
Gross financial savings in physical assets zoomed to ₹34.83 lakh crore in 2022-23 as against level of ₹29.68 lakh crore in previous year. The level of gross savings in physical assets in 2019-20 was ₹22.52 lakh crore and ₹21.35 lakh crore in 2020-21, official data showed.
