According to Michael Patra of the RBI, quarterly household savings reflect an increased trend

 According to Michael Patra of the RBI, quarterly household savings reflect an increased trend

Michael Patra, the deputy governor of the Reserve Bank of India (RBI), stated on Friday that the quarterly numbers showed an upward march toward the historical norm, days after data from the central bank revealed that household net financial savings had plunged to a five-decade low.

"Historically, household savings have accounted for around 7.5% of GDP... The absolute level of savings has increased (year over year) to 14%. It has grown from 4.2% in Q1 (of 2022-23) to 7% in Q4 in terms of quarterly statistics, indicating that it is moving in the direction of the (historical) trend, according to Patra, who spoke at the post-monetary policy press conference.

In the epidemic year of 2020–21, net household savings in India increased to 11.5% of GDP, but since then, they have been declining. According to the RBI's monthly bulletin published last month, it declined to a low of 5.1% of GDP in 2022–23 from 7.2% the previous year.

"We saw in the pandemic that people built up precautionary savings because they couldn't go out due to restrictions," Patra said. "As soon as these travel restrictions were lifted, people started to spend and drained their savings. Some of the occurrences you are seeing right now are like that.

Despite the 14% growth in financial assets that Patra mentioned, net financial assets decreased as a result of a significant 75.5% increase in household financial liabilities. The difference between financial assets and financial liabilities is what is known as net financial assets.

According to Patra, the rise in financial obligations was brought on by a switch from financial to physical savings, with the majority of the funds flowing to the housing industry. They are converting their physical savings into investments rather than financial savings. You will notice a rise in physical investment the next year, he added.

Assets include savings accounts, investments in financial institutions, life insurance, provident funds, currency, and other investments; liabilities include loans from banks and non-banking financial corporations (NBFCs), among other sources.

The finance ministry had also made an effort to allay concerns that low wage growth and rising inflation were eroding household savings by claiming that the low figure in the RBI statistics indicated a change in investment preferences toward non-financial assets like homes.

"Because they have started to take out loans to buy real assets like homes, they (households) gained financial assets by a lesser scale than in the previous years... We have evidence in the form of RBI data on personal loans, according to the government. "Banks offer personal loans with a variety of features. Real estate loans and auto loans are two of the most important ones. They both have collateral. These two account for 62% of all personal loans made by the banking industry.