household savings are increasing each quarter: Patra

 household savings are increasing each quarter: Patra

Delhi and Mumbai: Michael Patra, the deputy governor of the Reserve Bank of India (RBI), stated on Friday that the quarterly figures showed an increasing tendency toward the historical pattern, days after Reserve Bank of India (RBI) statistics indicated that household net financial savings had allegedly plunged to a five-decade low.

"Historically, the average household saving rate has been about 7.5% of GDP. The absolute amount 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 a post-monetary policy news conference.

In the pandemic-hit year of 2020–21, Indian household net financial savings increased to 11.5% of GDP, but they have subsequently started to decline. 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 a worldwide epidemic that people built up precautionary savings because they couldn't go out due to restrictions," Patra said. "As soon as these limits on mobility were lifted, individuals began to spend and drained this reserve funds. Some of the occurrences you are experiencing right now are like that.

Despite the 14% growth in financial assets that Patra mentioned, net financial assets decreased as a result of a staggering 75.5% increase in household financial obligations. 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 see a rise in physical investment the next year, he continued.

Assets include bank deposits, investments in financial institutions, life insurance, provident funds, currency, and other investments whereas liabilities for households include, among other things, loans from banks and non-banking financial organizations.

The finance ministry made an effort to allay concerns last week that family savings were being eroded by rising inflation and slow wage growth. "They (households) added financial assets by a lesser amount than in the previous years because they are now beginning taking loans to buy real assets, such as properties... RBI data on personal loans provides us with testimony," the ministry said. "Banks provide personal loans with a variety of features. Real estate loans and auto loans are important ones.These two account for 62% of all personal loans made by the banking industry.