India’s households’ net financial savings plunged to a five-year low of Rs 14.2 trillion in FY23, sharply down from Rs 17.1 trillion in FY22, primarily owing to a sharp rise in short-term credit, data released by the statistics ministry showed on Monday. The fall could be attributed to “a lot more leveraged consumption and spending” due to greater and faster access to credit, economists said.
As a percentage of GDP, the households’ net financial savings in FY23 was at 5.3%, the lowest in around five decades. Between FY12- FY22 (excluding Covid-19 year FY21), the net financial savings hovered between 7-8%.
The gross financial savings of households stood at Rs 29.7 trillion in FY23, while the financial liabilities stood at Rs 15.6 trillion. In FY22, the former was at Rs 26.1 trillion, and the latter, at Rs 9.0 trillion. To be sure, household liabilities jumped 73% on year in FY23, while savings rose only 14%.
Within financial liabilities, “bank advances”, or short-term credit usually availed through credit cards jumped 54% on year in FY23, the fastest growth recorded since at least FY12. Bank advances also accounted for 76% of the overall liabilities of households during FY23.
“The data (FY23) depicts that the nature of financing consumption has changed,” said Sakshi Gupta, principal economist, HDFC Bank. “Since a lot of consumption/spending is leveraged, it shows that there is an increase in demand in certain sections – for instance, housing,” she said. In FY23, the housing credit to GDP ratio was at 7.1%, slightly higher than that of FY22. In the pre-pandemic year, FY19, the ratio was 6.2%.
Some economists say that in a scenario of weak wage growth and leveraged consumption – as depicted by the above mentioned data – consumption growth is likely to be hit. In FY23, the growth in private final consumption expenditure had come in at 6.8%, and in FY24, at 3% (as per NSO’s second advance estimates).
But the data for FY23 doesn’t depict any signs of distress as such, according to the finace ministry. In September 2023, the ministry had said that “changing consumer preference for different financial products” is the real cause for decline in net financial savings of households. The comments had come immediately after the release of Reserve Bank of India data, which showed net financial savings of households fell to a 47-year low of 5.1% (as a ratio of GDP) in FY23.
“Between June 2020 and March 2023, the stock of household gross financial assets went up by 37.6%, and the stock of household gross financial liabilities went up by 42.6%—no big difference between the two,” the ministry had said.
Households had added net financial assets of Rs 22.8 trillion in FY21, nearly Rs 17.0 trillion in FY22 and Rs 13.8 trillion in FY23. “So, they added less financial assets to their portfolio than in the previous year and the year before, but it is important to note that their overall net financial assets are still growing,” the finance ministry said. “They added financial assets by a lesser magnitude than in the previous years because they have now started taking loans to buy real assets such as homes.”
There has been a steady double-digit growth in loans for housing since May 2021. Vehicle loans have grown at double digits year-on-year since April 2022 and more than 20% since September 2022. “The household sector is not in distress, clearly. They are buying vehicles and homes on mortgages,” the finance ministry had noted.
In FY24, economists say households’ net financial savings likely reduced further with rise in household financial liabilities (borrowings).
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